Simultaneously inviting China to talks in Washington and imposing tariffs on an additional US$200 billion worth of Chinese imports is a sign that the White House might be in a state of disarray.
It is no secret that the “realists” or “adults” in the Trump administration, Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross, do not see eye to eye with the “hardliners,” Robert Lighthizer, John Bolton and Peter Navarro on trade and possibly geopolitics.
For example, Mnuchin and Navarro were reported to have argued in Beijing over negotiation tactics and contents. Navarro was said to be frustrated because he thought Mnuchin was not “tough” enough on the host country. Up to now, the “hardliners” seem to be in charge of trade and foreign policies.
Things might have changed in the White House policy influence pecking order. Navarro and Lighthizer might be losing Donald Trump’s ear since the president allowed Mnuchin to invite Chinese Vice-Premier Liu He to Washington for talks on trade issues.
Fight within White House might be brewing
It would appear that the “realists” might have gained the upper hand until Trump imposed tariffs on an additional $200 billion worth of Chinese “imports” on Monday.
The White House’s strategy on how the tariffs are to be imposed is interesting if not politically astute: Levying a 10% tariff between September 24 and December 31 and exempting products that have a noticeable impact on the US economy might be less economically and politically sensitive.
The fact that China did not back down like he and his “hawk” advisers probably expected, Trump cannot undo what he started. If he did so, he would lose credibility and be seen as weak, which could lead to losing the support of his base.
However, escalating the trade war has hardened China’s position even more. The Chinese leadership cannot and will back off from the “Made in China 2025” policy just because Trump tells it to. The State Council (cabinet) has increased the innovation budget to more than 2% of gross domestic product, an attempt to leapfrog technology advancement sooner rather than later. The Chinese Ministry of Commerce also announced retaliatory measures even before Trump imposed tariffs on the $200 billion worth of Chinese-made goods imports. Expect more Chinese countermeasures in the coming months.
Moreover, Trump’s trade “hawks,” Lighthizer and Navarro, are wrong to accuse China of unfair trade practices. No organization, including the US Treasury Department, has accused China of manipulating the yuan based on the value of trade and size of the deficit.
China’s technology advancement might be more attributed to its investment in education, research and development, and buying foreign technologies. With more than 6 million science, technology, engineering and mathematics (STEM) graduates each year, a few are bound to be “bright stars” capable of taking the country’s technology improvement to higher levels.
Meanwhile, the US has been losing its factories and manufacturing jobs because its businesses wanted higher returns on investment, discarding manufacturing for services while automating the remaining jobs.
Probably realizing that the US cannot win a war based on “alternative facts” against a formidable foe, the “realists” appear to be raising their voices against the “hawks.”
US economy not as good as Trump boasts
Further, the US economy is not doing nearly as well as Trump boasts. Unemployment may be low, but 18% of the US labor force are part-timers working between one and 34 hours per week, according to the Department of Labor. The participation rate, the percentage of the population 21 years or older, has steadily declined since the 2008 financial crisis because many became discouraged and withdrew from the labor market.
The 4.1% annualized growth in the second quarter might be a blip or an overstatement, caused by a one-time surge in agricultural exports, tax cuts, and government spending (largely on defense).
Most economists will agree that growth based on three months of data does not necessarily constitute a trend. It is very unlikely that agricultural exports in the coming quarters will be as robust as in the second, because China has reduced or discontinued importing farm products from the US. The tax-cut benefits will have been exhausted, resulting in less consumption. The mounting government debt (already over 100% of GDP and growing) will preclude additional spending.
Trump losing support
Adding to Trump’s problem is that Americans seem disillusioned with him. Many polls point to a Democratic victory in upcoming congressional elections. Billed as a referendum on Trump, a Democrat victory in November might end his political fortunes, and he could possibly be impeached before the November 2020 presidential election.
The history of US elections has shown that no recent president has been re-elected when the economy tanks under his watch. George H W Bush, for example, was highly popular after the Gulf War against Iraq. But the economy tanked, resulting in the election of Bill Clinton as president.
Trump or his senior advisers can probably read the polls and the economy as well as anyone else, explaining the currently divided White House. Scaremongering tactics such as telling voters that they can “kiss their new wealth goodbye” if they vote for the Democrats is a sign of political insecurity.
Trump resorts to China-bashing
One policy that gains public support is China-bashing. After years of being brainwashed by the media and pundits, most Americans believe “communist” China is bad and evil: a repressive regime killing its own people, stealing American jobs and secrets, and doing a host of other evil acts.
The majority negative sentiment is not lost to politicians, explaining why all presidential candidates since Bill Clinton have played the “China card” in their election bids. Clinton called China a “tyranny.” George W Bush labeled China as a “competitor.” Barack Obama instituted the “pivot” to Asia and negotiated the Trans-Pacific Partnership, both of which were intended to contain and isolate China. Trump accused China of “raping America” for decades and blamed it for everything that is wrong in the US.
To gain popular support, he imposes tariffs, plays the “Taiwan card” and pressures “like minds” such as Australia, France, the UK, Japan and India to counter China’s rise in the South China Sea. These strategies seem to resonate with the majority of American voters.
Most Americans seem to believe that high tariffs on Chinese (and other countries’) goods will bring manufacturing back to the US, however delusional that might be. A “united front” countering China in the South China Sea is a geopolitical victory because the US is seen to have “universal support.” Establishing closer ties with Taiwan could destabilize China.
Trump’s strategies could backfire
It will take years for the US to acquire the necessary labor force. Even if manufacturing does return, the costs will be prohibitively high, making the US less competitive. Businesses may have no choice but to automate, putting the US back to Square 1. If manufacturing does not return to the extent and at the rate Trump promises, his support base will likely crucify him.
There is no reason to believe that the aforementioned allies willingly join the US on “freedom of navigation operations” in the South China Sea, because that would amount to cutting off their nose to spite the face. All of these countries are either dependent on or wanting to forge closer economic ties with China to improve their socio-economic well-being. Besides, there is no guarantee that China can be defeated without considerable cost. Further, countries have no permanent friends or foes, only national interests.
Getting the present Taiwanese government to destabilize mainland China would be a short-term prospect at best. Taiwan’s governing Democratic Progressive Party may not be returned in the next election because of the worsening economy. The present government is sinking in the polls, harboring less than 30% support, according to Chengchi University.
Trump could end up “Making America Worse.”
China has not survived for 5,000 years by succuming to the present moment. When a storm hits a ship at sea the captain does not just throw in the towel and allow his vessel to sink. He slows his rate of progress and alters his course until the tempest passes and then goes back on course and speed.
The US on the other hand looks to quick profits and solutions poorly thought out and enacted. China will win this race hands down. A hit of 1% on a growth rate of 7 to 8% is manageable. The US will blink first in this trade war.
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