“It was the best of times. It was the worst of times.” Dickens could have been writing about the US last week. The S&P 500 and NASDAQ hit record highs while two of President Trump’s closest confidants pled guilty or were found guilty of felonies that could spell the beginning of the end of Trump’s presidency. At the same time US and Chinese trade officials predictably made zero-progress in resolving America’s trade war on China.
I worry that given Trump’s unique psychological profile, one that doesn’t arm him to perform well under pressure or criticism, he has singled out China as his US public enemy number one with potentially devastating results for these two countries and the world-at-large. There is ample evidence that the trade war is only Trump’s opening salvo and will be followed by economic encirclement, Cold War…and well, the rest is too upsetting to contemplate.
An autoworker holds a sign that reads "We Don’t Want Tariffs" during a news conference on Capitol Hill in Washington, DC, US, on July 19, 2018. /VCG Photo
In Trump’s binary world, there’s no happy medium; only winners/losers, friends/enemies, trade surpluses/deficits. Such simple-mindedness often leads him to self-righteous wrong-headedness. For example, contrary to Trump’s famous tweet that trade wars are good and easy to win, there are only losers. While Trump has legitimate concerns about some Chinese trade policies, these were being addressed.
Until Trump’s presidency, although increasingly difficult, Democrats and Republicans tried to find common ground to make progress. The US is now so divided that the gulf between right and left is as wide as the Grand Canyon. Trump is doing all he can to widen it to divide and conquer.
Take the Bilateral Investment Treaty. It had been negotiated since 2008 under the leadership of two presidents and substantial progress was made until negotiations were abandoned by Trump. It was drafted to do exactly what Trump wants. In the words of Obama’s US Trade Representative Michael Froman, it intended to provide “a major opportunity to engage on China’s domestic economic reforms and to pursue greater market access, a more level playing field, and a substantially improved investment environment for US firms in China.” Now, China and the EU are on track to agree to just such a treaty to their benefit and America’s detriment. America first? No. Politics first.
ZTE’s building in Beijing./VCG Photo
Rather than starting a trade war, there are organizations like the WTO that can help resolve disputes. It’s time for these same organizations to reexamine the archaic ways we define trade balances. But it seems like Trump is either not interested in facts or is unable to comprehend them. World trade has gone global now. Smartphones from Apple to ZTE have components sourced from a variety of countries. An iPhone X imported from China uses US-made Qualcomm chips, Korean Samsung screens, and Japanese Sony cameras. Yet under current outmoded rules, the US counts it as a 100 percent Chinese export when the value added by China is considerably less and therefore so is the trade deficit.
Some experts rightly advocate a concept called “value-added trade” to account for supply chain globalization. Using this metric by one estimate the US trade deficit with China in goods and services, as well as US imports from China, could be reduced by roughly one-third. Adopting this 21st century approach would allow Trump to declare victory but it’s again a case of politics first.
Trump, never having matured beyond schoolyard bully, wouldn’t be content to stop here. Experts like Henry Kissinger have written that throughout China’s history, what it fears most is encirclement and imposition of barriers to halt or contain China’s rise. That to me is what Trump is doing, at least economically. Several Trump actions last week prove the point.
In a campaign rally in West Virginia Trump admitted as much saying that when he took office China was on track “to be bigger than us in a very short time. That’s not going to happen anymore.”
Although Trump had previously triumphantly and erroneously said that there is no longer a nuclear threat from the Democratic People’s Republic of Korea (DPRK), he canceled Secretary Mike Pompeo’s visit there blaming China for not helping with denuclearization “because of our much tougher Trading stance.” He said the visit would be rescheduled “after the US trading relationship with China is resolved.” That’s going to take a while especially since Trump imposed 16 billion US dollars in more tariffs on China; China responded in kind and filed a complaint with the WTO, and hearings were held with hundreds testifying how the imposition of 200 billion US dollars of additional US tariffs would cripple or bankrupt their businesses.
What worries me is that Trump is walking us into the Thucydides Trap. The concept, described by Harvard Professor Graham Allison, is that throughout history a rising power almost invariably goes to war with the leading power.
Someone once asked Albert Einstein what weapons would be employed in World War III. He replied that he didn’t know but that World War IV would be fought with sticks and stones. That’s why the situation is so potentially upsetting.
Dr. Harvey Dzodin, a non-resident researcher of the Center for China and Globalization(CCG). He was vice president of the ABC TV Network in New York and Legal Counsel in the Jimmy Carter administration.