There is Actually a Strategic Logic behind the China Trade War; Trump just doesn’t Understand or Care


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This is a re-post of an essay I wrote earlier this month for The National Interest. Basically, I have been amazed in the media discussion of the Sino-US trade war at how little effort there’s been to explain why it might be a good idea – namely, if you accept that China is a serious medium- and long-term threat to the United States.

Now you don’t have to agree that China will, in fact, become  that threat. Scholars like Dave Kang don’t think so. If not, then the trade war is just a foolish distortion of the comparative advantage benefits both sides reap from trade. It is then strictly an economics question, where Trump is indulging foolish protectionist instincts which woefully misunderstand that a US trade deficit is not a a problem to worry about.

But if you do think China is a looming competitor, if not a serious threat, then the logic of scaling back China trade is pretty obvious – the political benefits of slowing China’s rise outweigh the economic benefits of its cheap imports and T-bill purchases.

This line of argument would actually be pretty persuasive to a lot of people. I think there is a growing consensus in the natsec community that China is a real threat. Hence Trump could find new allies for his controversial trade war policies. But he never makes this pitch – I presume because he is too obtuse to actually understand this argument. Just in his Wisconsin speech again yesterday, he instead made the same ridiculous argument that the US trade deficit with China is China ‘ripping us off.’ Whatever…

The full essay follows the jump.

 

US President Donald Trump’s trade war with China is controversial. It cuts against the grain of traditional American openness to foreign trade. It violates free trade, a core tenet of market capitalism and one of the few area where the economics profession is nearly monolithic in its policy recommendation. And certainly a protracted trade war with the world’s second largest economy will have negative economic impacts. Trump’s tariffs may save jobs in one sector, but only at the cost of jobs in other sectors as trade diversion and inefficiencies set in.

But there is a strategic logic for trade curtailment with China – namely growing political and military competition with China, especially in East Asia. Curiously, Trump almost never makes this argument. Trump has referred to himself as a ‘Tariff Man,’ and he routinely makes protectionist and mercantilist arguments for his trade policies. This often leads to bizarre outcomes, such as the White House’ assertion that Canadian or NATO country imports constitute a national security threat to the United States.

By emphasizing protectionism as a motivation to take on China, Trump creates unnecessary opposition. American elites generally accept the theory of comparative advantage as well-established economics going back two centuries. Trump’s Twitter bluster is not going to change that. Trump’s own Republican party has similarly long defended free trade to insure competition to keep American capitalism vibrant and open new markets overseas for American exports. Trump has set himself against a rather deep intellectual consensus in Washington – barring the more traditional elements of the Democratic party – and so created more opposition than necessary.

Instead of defending Chinese trade antagonism as a dubious protectionist venture, the more obvious case to make is that trading with Beijing is increasingly trading with the enemy. Therefore, economics must be subservient to politics, and Americans should sacrifice some of the benefits of trade with China – cheap goods, cheap capital – for the larger benefit of slowing China’s rise to hegemony in Asia and direct, superpower peer competition with the United States.

The national security community has, of course, long worried about China’s rise. After the Soviet Union collapsed, the only possible competitor to the US on the horizon has long been China. Other continental-sized powers like the European Union, Brazil, or India are democratic, while Russia lost two layers of empire in the Soviet collapse and is much reduced.

The Chinese Communist Party survived the collapse of Eastern European communism through harsh measures, most obvious the suppression of student protestors on Tiananmen Square in 1989. This persistence, coupled with China’s continuing marketization and modernization, meant the possible emergence of a wealthy, authoritarian great power. Analogies to Wilhelmine Germany are common.

In the 1990s though, this still seemed far off. The natsec community at the time could be dismissed as looking for a new enemy now that the Soviets were gone, or being overly hysterical about China at a time of unparalleled unipolarity. Pushing back on China hawks was the business community dreaming, as it has since the Open Door, of China’s huge internal market. And this ‘chamber of commerce’ bloc overcame the hawks (and labor) in the 1990s. The US granted Permanent MFN status to China under President Clinton, and the US supported China’s entry into the WTO in 2000.

President Clinton captured the strategic logic of this well by calling it ‘modernization by stealth.’ Pulling China into the global economy would also politically and social open up and liberalize it. A wealthier China would be less interested in competition and nationalism, and more interested in material and quality of life advancement. The tiger would be sated and better-behaved.

This was a reasonable gamble at the time. Modernization and wealth have tempered other states – most obviously in Europe, Latin America, and democratic East Asia – and it was not an unreasonable hope that China might go the same route.

But in 2019, it is fair to say that this hope has not worked out. The issue is not completely decided. The US and China are not in a full-blown cold war, but they are drifting in that direction. The conflict in the South China Sea is gradually emerging as one of the major hotspots in the world. China is no better on issues like North Korea, Taiwan, or internal human rights than in the 1990s. It drags its feet on environmental issues despite being the world’s worst polluter. It throws money around south east Asia to undercut ASEAN and a unified line on the South China Sea. It flirts with Vladimir Putin’s gangster dictatorship. It has instituted a disturbing orwellian surveillance state at home of ubiquitous cameras and surveillance. And President Xi Jinping has (seemingly) overthrown the post-Mao leadership rotation system for permanent rule.

In short, modernization has not tempered the tiger; if anything, it has feed the it. Instead of facing a poor authoritarian state in 1990, the US now faces a wealthy one. And the US business community is no longer pushing back that hard on this hawkish interpretation. Business has slowly soured on China over the decades in the face of politicized, xenophobic regulation, relentless IPR theft and patent and copyright violation, forced technology transfer, Chinese subsidization and protection for Chinese firms, corporate espionage, and so on.

The policy discussion on China is drifting rightward. The business coalition which checked the hawks and US military twenty-five years ago is now ambivalent, while the hawkish or ‘China threat’ coalition – think-tankers and analysts, the military, the Japanese, Congress – is growing.

There is now arguably a strategic argument for the trade war – slowing China’s growth, even if it slows US growth, serves a larger national security purpose, and should therefore be considered. I do not believe myself that we are locked into cold war with China already. There is still room to maneuver, particularly if Xi steps down (however unlikely) as his predecessors did after ten years. Nevertheless, the case for blunting Chinese growth to blunt its rise to regional hegemony is now clearer than ever. Trump could united a fairly wide coalition with this message.

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