For at least a month, there has been no doubt that Presidents Donald Trump and Xi Jinping would agree to agree at the Buenos Aires summit. The threats, remonstrations and hints of high officials were for the most part scripted. Buenos Aires was less negotiation than reality show.
When the dust settles, America and China will have a deal that allows Trump to claim victory and allows China to become the world’s dominant economy.
Two things changed to bring America and China back to negotiations.
First, Trump learned that he was in the position of the Lord High Executioner in Gilbert and Sullivan’s “Mikado,” that is, “he can’t cut off another’s head until he’s cut his own off.” Trade war with China contributed to the correction in the S&P 500, which lost 10% peak-to-trough through last Wednesday. It also produced so much uncertainty about the future of supply chains that capital investment plunged around the world, as I reported November 30.
If Trump made good on his threat to impose tariffs on all Chinese imports, including most of American purchases of consumer electronics, the impact on household budgets would have been severe. Trump wants a second term, and trade war risked a recession just before the 2020 elections.
Second, China concluded that Trump wants to look like a winner, and decided to give him what he wanted. Senior advisers to the Chinese government explained this to me last October. The new Chinese consensus holds that the world’s largest country can afford to be patient, concentrate on raising productivity and per capita income, and forego bragging rights about its growing economic power. As I wrote from Beijing:
“The United States during the 19th century did not attempt to impose its will on other countries, [one advisor] noted. Only after the Second World War did the United States act like a major power. China, he concluded, will have to take a more modest role in world affairs ‘until 2035, when it will be a much more powerful country.’”
There is a coterie of advisers in and around the Trump Administration that appeared to believe that trade war would damage China’s economy so severely as to destabilize the rule of Xi Jinping. For years, the American consensus held that China’s opening to the world economy inevitably would lead to a democratic transformation of this ancient empire. When that failed to happen, the same advisers argued that the Chinese system must collapse of its own weight because (as they believe) the American way of doing things is the only right one.
Among the president’s senior staff only National Security Adviser John Bolton takes this sort of talk seriously. Before taking office, Bolton advocated stronger support for Taiwan against the mainland. The resounding victory in Taiwan’s local elections last month of the Kuomintang, a party that eschews calls for independence and supports closer ties with the mainland, took this idea off the agenda.
It is unclear to what extent the revolt of America’s allies influenced Washington’s thinking. Beijing showed its seriousness about opening its financial industry to foreign firms last week by offering a license to the German insurance giant Allianz. There will be something of a gold rush of global firms into the Chinese market, and American companies do not want to be at the end of the queue.
What the US and China actually will negotiate during the next 90 days will include the following:
1) More US exports to China, especially LNG. China might invest in LNG facilities on the US West Coast to increase capacity.
2) An intellectual property agreement dictated by the United States. China will crack down on technology theft, at least where official institutions are concerned, and leave Apple and Qualcomm to sue each other over patent infringement.
3) Further opening of the Chinese market to US trade and investment.
4) The abandonment of the “Made in China 2025” slogan, although the same investments will proceed with less fanfare.
None of this will do America much good in the long run. Trump asked for the wrong things and Xi agreed to concede them.
According to industry experts, China is spending upwards of US$50 billion for semiconductor fabrication each year, compared to less than US$5 billion in the US. Some experts believe that the fabrication of semiconductors will come to an end in the US within five years.
Asian companies will dominate key new technologies, including 5G mobile broadband, which is critical for the so-called Internet of things. American media reported today that Apple will wait until some unspecified future date to offer handsets that use the 5G technology. China’s telecommunications giant Huawei, which now sells more handsets than Apple, is trying to position itself as the leader in the field. So is South Korea’s Samsung.
America, in short, is losing ground not only in semiconductor and other high-tech electronic production, but also in design.
When America really was great back in the 1980s, federal R&D (overwhelmingly defense and NASA) amounted to 1.2% of GDP, versus just 0.7% today. Most of the R&D budget has been diverted to things like climate change, or status-quo weapons systems like the F-35. As matters stand, nothing will prevent China from becoming the dominant world economy by 2035 except, of course, missteps by China itself.
Goldman is right. The barbarians are looking at the 2020 election. China is looking to 2049 and beyond.
Goldman is right. The barbarians are looking at the 2020 election. China is looking to 2049 and beyond.
Yes. A big worry of the "emperor" spoiled generation who never seen any hardships. That’s why I take my kids to go camping and make sure they do things and I always try hard to hold back unnecessary help from myself.
Yes. A big worry of the "emperor" spoiled generation who never seen any hardships. That’s why I take my kids to go camping and make sure they do things and I always try hard to hold back unnecessary help from myself.
Ah, Mr. Goldman allready practising the Kow Tow.
Ah, Mr. Goldman allready practising the Kow Tow.
The problem is cultural, but not long-term cultural, just (a) natural after six decades of plenty and comfort, and (b) the fruit of heavily-advertised consumption and devoting ourselves to pleasures. This is another problem of modern liberal capitalism: if everybody is free to do what they want and get what they can afford — under the influence of overwhelming advertising propaganda — they will not necessarily choose things that are good for them or for society.
I spent September in China and saw time and again small shops where the proprietress had a child behind her in the evening, studying. Do as many parents here put that kind of pressure for hard work and education on their children? Here in the North America, pleasure is king, and is the main goal of many young people.
But cultures can change. Some decades ago, Britain and America were recognized as the hardest-working countries, and China seen as disorganized and lazy. And I have seen a report from the early part of the 20th century, describing Japanese workers as lazy and recalcitrant. Seemingly immutable characteristics are actually changeable.
The problem is cultural, but not long-term cultural, just (a) natural after six decades of plenty and comfort, and (b) the fruit of heavily-advertised consumption and devoting ourselves to pleasures. This is another problem of modern liberal capitalism: if everybody is free to do what they want and get what they can afford — under the influence of overwhelming advertising propaganda — they will not necessarily choose things that are good for them or for society.
I spent September in China and saw time and again small shops where the proprietress had a child behind her in the evening, studying. Do as many parents here put that kind of pressure for hard work and education on their children? Here in the North America, pleasure is king, and is the main goal of many young people.
But cultures can change. Some decades ago, Britain and America were recognized as the hardest-working countries, and China seen as disorganized and lazy. And I have seen a report from the early part of the 20th century, describing Japanese workers as lazy and recalcitrant. Seemingly immutable characteristics are actually changeable.
The issue is of course why be a dog in the manger and pick a fight with China. Cooperate for a better world.
Merry Xmas everyone!
The issue is of course why be a dog in the manger and pick a fight with China. Cooperate for a better world.
Merry Xmas everyone!
It’s just reverting to historical normal. China is the longest continuous civilization and top #1 of the time, except when over populated overwhelmed resource utilization then open for foreign invasions. It’s an agricultural or bee hive culture and value hard work, peace, stability, and prosperity without aggressive tendencies seen in pirate or wolf/predator cultures, unless provoked/attacked too, eg think bee sting reaction when disturbed. In short Chinese make/build, Westerner plunder/destroys. China’s BRI will benefit all cultures: agricultural/builder, ME traders, and even warrior cultures hired to protect trade routes, etc.
It’s just reverting to historical normal. China is the longest continuous civilization and top #1 of the time, except when over populated overwhelmed resource utilization then open for foreign invasions. It’s an agricultural or bee hive culture and value hard work, peace, stability, and prosperity without aggressive tendencies seen in pirate or wolf/predator cultures, unless provoked/attacked too, eg think bee sting reaction when disturbed. In short Chinese make/build, Westerner plunder/destroys. China’s BRI will benefit all cultures: agricultural/builder, ME traders, and even warrior cultures hired to protect trade routes, etc.
Clear and balanced analysis, thumbs up to the writer!
Clear and balanced analysis, thumbs up to the writer!
"There is a coterie of advisers in and around the Trump Administration that appeared to believe that trade war would damage China’s economy so severely as to destabilize the rule of Xi Jinping."
This is known as wishful thinking.
"Asian companies will dominate key new technologies, including 5G mobile broadband, which is critical for the so-called Internet of things. American media reported today that Apple will wait until some unspecified future date to offer handsets that use the 5G technology." This is because hardware and real science-based engineering is hard. Doing a hardware start-up, particularly one in process OEM equipment is even harder (trust me, I’ve been in a few of these). It also does not have the culture of screwing around that computer programming has. All of these factors make real science-based engineering unappealing to most American young people, especially those who believe in PC.
"Some experts believe that the fabrication of semiconductors will come to an end in the US within five years." I find this difficult to believe as Intel still has most of its fabs in the U.S.. There are other large fabs such as IBM in upstate NY and Samsung in Austin TX area and Micron in Boise. We will manufacture semiconductors for some time to come.
"There is a coterie of advisers in and around the Trump Administration that appeared to believe that trade war would damage China’s economy so severely as to destabilize the rule of Xi Jinping."
This is known as wishful thinking.
"Asian companies will dominate key new technologies, including 5G mobile broadband, which is critical for the so-called Internet of things. American media reported today that Apple will wait until some unspecified future date to offer handsets that use the 5G technology." This is because hardware and real science-based engineering is hard. Doing a hardware start-up, particularly one in process OEM equipment is even harder (trust me, I’ve been in a few of these). It also does not have the culture of screwing around that computer programming has. All of these factors make real science-based engineering unappealing to most American young people, especially those who believe in PC.
"Some experts believe that the fabrication of semiconductors will come to an end in the US within five years." I find this difficult to believe as Intel still has most of its fabs in the U.S.. There are other large fabs such as IBM in upstate NY and Samsung in Austin TX area and Micron in Boise. We will manufacture semiconductors for some time to come.
The USA is the first nation in the world to be ruled by the gut flora, Emperor Trumpapotomus.
The USA is the first nation in the world to be ruled by the gut flora, Emperor Trumpapotomus.
Weak, foolish, American Presidents (#44,#43,#42 and the grandfather of the whole disater,#41) never thought the Middle Kingdom could achieve such heights——–American decision makers blew it big time with no plan at all to counter the "Dragon"——–WELL boys and girls—–the "Dragon" has broken free of the cage and that is where we stand right now!!
Weak, foolish, American Presidents (#44,#43,#42 and the grandfather of the whole disater,#41) never thought the Middle Kingdom could achieve such heights——–American decision makers blew it big time with no plan at all to counter the "Dragon"——–WELL boys and girls—–the "Dragon" has broken free of the cage and that is where we stand right now!!