Is Trump “coupling” with China?
In a very interesting essay, Fatih Oktay asks why China would agree to a trade deal that seems to offer it very little of value:
However, these considerations only provide breathing space for China. After the election, if Trump wins, he is likely to bring back into spotlight the more important issue of state involvement in the economy and technological development in China, and intensify the technology war. If Trump does not win, it is likely to be worse for China. Another president that can leverage the United States’ soft strengths and cooperate with allies could make life much harder for China. So, either way the conflict is likely to intensify after the U.S. elections. It is unlikely that Chinese leadership would go into this deal just for a short period of relief.
The deal, though, may have long term effects on the relationship of the two countries as well. U.S. exports of goods and services to Canada and Mexico, its top two markets, totaled about $365 and $300 billion dollars respectively in 2018. The trade expansion required by the deal will place China’s imports of U.S. goods at a level comparable to that of Mexico by the end of next year, and if the trend continues, with the expected rates of its economic growth, China may soon be the top market for U.S. exports. That would be strong coupling in a time of decoupling discussions and would make the United States a stakeholder in the Chinese economy. The other side of the coin: China’s leverage on the United States would increase immensely.
It is rather strange for the US to demand that China become much more closely integrated with the US economy at a time when the foreign policy establishment talks of “decoupling”. And it’s not just trade, we are also demanding that China become more open for foreign investment. This is an example of what can go wrong when an administration goes into negotiations with no clear idea of what it is trying to achieve.
The Trump administration is also hostile to multilateral organizations and is trying to cripple the WTO. Fortunately, a group of other nations representing a major portion of the global economy are trying to protect the global trading system:
Now you know the answer to the question: “What do the US, Russia, Argentina, Bolivia, Paraguay, Peru, Venezuela, Africa and South Asia have in common?
PS. I wonder how Trump supporters feel about their President saying how much he “loves” Xi, a dictator who presides over massive human rights abuses in Xinjiang. Personally, I find this sort of “coupling” to be disgusting. (Yes, I know he was joking, but wouldn’t you prefer he call out the Chinese on human rights? It’s nothing to joke about.)
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28. January 2020 at 16:40
Predicted reaction:
“Worrying about human rights is for weaklings, losers and chumps!”
28. January 2020 at 17:10
I guess of observers are coming to accept the view that mainland China will actually and substantially increase imports of US-made product. I will believe it when I see it, but the dial certainly has been changed.
President Trump, and the vast multinational enterprises, are entirely mute on human rights abuses in mainland China and, of course, the Mideast.
It is a curiosity that with increasing economic globalization, human rights are in increasing retreat. But then, what motivates globalization is not human rights.
28. January 2020 at 21:09
Scott,
I’ve been saying for a while that China will only become a major factor in international power politics if and when it becomes a source of positive externalities to the world. The US used to provide many of those, because by serving its own needs in international alliances, military involvements, and trade (including trade treatises), it also advanced many other people’s interests. So they garnered a lot of friends quite easily that way. Note, Russia never did any of that and that’s why they have basically no friends. China tried with Belt and Road, a kind of Marshall plan, but with so far limited success… people don’t like to be debtors. What was always missing is China’s role as a market – you can’t blackmail other economies the way the US does with its endless sanctions, if you don’t wield the whip of denying access to your important markets. So China’s market needs to become important, if China is to develop international clout.
In this light, you’re making a really interesting observation here. I hadn’t thought of that angle. It may indeed be a way of China to increase leverage on the US. They give access to a market… and they can then take it away too.
28. January 2020 at 21:22
mbka, I also thought it was an interesting observation. I’m actually not convinced that the Chinese will import as much as they claim from the US, but time will tell. (Also, commodities are fungible, so there are ways of gaming the statistics.)
29. January 2020 at 03:02
Sumner’s observations about China (and Trump) are always spot on. One thing one has to understand about Trump is that what you see or hear may differ, and differ radically, from what you get. Consider TPP (which seems to have exited peoples’ consciousness), Trump torpedoed it because he said it favored China. What? The primary purpose of TPP was to provide more competition for (an alternative to) China in Asia. Or consider what Trump’s trade representatives placed at the top of their demands in negotiations with China: a veto power over China’s domestic fiscal (industrial) policy. Yet, what has Trump settled for: selling wheat and red meat to China. Finally, consider Huawei. Trump wants the west to block Huawei from doing business in the west because, according to Trump, Huawei is a security risk. But our allies aren’t going along with the embargo. Why? Sure, Huawei may pose a security risk, but Huawei is the leader in 5G technology.
To sum up, American business was all in on doing business with China when China firms were producing goods for American firms, but in this new phase of China’s development, with China firms producing goods for China firms to compete with goods made by and for American firms, not so much.
29. January 2020 at 03:24
Stray thought: Globalization is seen hand-in-hand with declining labor shares of income, rising GINI co-efficients.
So, globalization increases class, racial, religious, ethnic, and sectarian tensions within each nation. Government must maintain order, so authority become more repressive, and human rights take a back seat. In some nations, populism becomes the norm (2020 US: a Sanders vs. Trump election>)
https://fredblog.stlouisfed.org/2020/01/globalization-affects-india-too/
Multinationals, the guiding power behind globalization, are, of course, indifferent to human rights, and by charter must honor foremost fiduciary obligations to shareholders. If holding hands with Beijing or Riyadh makes more money, then….
And Beijing, with its belt and road initiative, actually has a growing stake in stable regimes, regardless of human rights concerns.
So, globally, we see rising per capita GDPs…and more stratification…and more repression.
Find a backwater region, and hide out!
29. January 2020 at 04:35
Scott, I really don’t understand your enthusiasm for these managed trade agreements (such as the EU one). They are really just about protectionism by another name. It would be better to argue for proper free trade, that is a floating currency and no deals with other nations either on imports or exports.
29. January 2020 at 05:43
Trump “loves” Xi because he loves strongmen and also b/c he wants them to help him in the election.
The Dems should not mention the human rights abuses in China as doing so will motivate the Chinese government to be pro Trump. These trade issues are inconveniences to their government compared to the US getting up in their business regarding the Uyghurs.
29. January 2020 at 06:44
“loves Xi”? Okay—-and yes, like most Presidents he complements other leaders—-And he maybe has not called them out —-but he did sign the HK pro-democracy Human Rights and Democracy Act—so why traffic in anti Trump minutia? Has you favorite Democrat spoken out?
Re: international trading organizations. This is a utilitarian issue and an efficiency issue versus a sovereignty issue. You act like it is some huge beneficial moral imperative. Plus—one can engage in both—as we do. So Trump does not like to outsource trade disputes. Big deal.
More interesting, is your comment on the “coupling” of our two economies—-although I don’t know why Oktay mentions that in the framework of China “losing” vis-a-vis America regardless of who next President is. She calls it bad for China in short run and good formChina in long run? I don’t know what that means in reality. I think Oktay is just thinking out loud. Personally, I like more “coupling”, assuming that is remotely accurate—-regardless of what Trump may or may not think.
Our analytical thinking regarding WTOs versus Bilateral— on the margin greatly exaggerates effects, regardless of the direction.
29. January 2020 at 06:48
I said “she” re: Oktay——-I believe he is a “he”. 🙂
29. January 2020 at 06:58
Chaudoin, Kucik, Pelc (Oxford 2016) ——along with other writers, have disputed the relevance of organizations like WTO—-to my point above.
29. January 2020 at 08:37
Scott, I assume you know Balance of Power theory, which holds “normal” is bi-polar gameplay perhaps with a swing C player.
It’s obvious we have entered the TECH COLD WAR with China.
It’s very first chapters, but it seems way more than likely BECAUSE BoP theory holds that THIS IS GOOD for both main players.
In this way, you can see coupling and decoupling.
So this Internet you type into today Scott, this is the Western Internet, to combat the dystopian Chi-commie global takeover the ENTIRE tech stack (every device, router, server, and their chips must be mad without ANY CHINESE parts or software.
We Libertarians ALSO GAIN form this tech cold war, bc it gives a CLEAR SET of things Western Civilization against, backdoors bad, network siphoning bad, and end to end encryption good. So we can scream and holler at our leaders to GIVE US PRIVACY!
And if our leaders don’t then what good is the tech cold war THEY ALL BENEFIT FROM?
—–
The heaviest gravity narrative: under BoP, the MAIN NARRATIVE is US vs China, and as such ALL OTHER US POLICY has to first pay homage to that narrative.
Every other country becomes a satellite we want choosing US bc they must choose.
So….
The tech cold war puts Russia and Ukraine BOTH ON OUR SIDE. Our job is to negotiate their truce and make sure Putin gets to keep his $200B while he embraces property rights and rule of law before he dies.
—-
3%+ RGDP growth for 20 years is suddenly possible! Which turns the Millennials into Yuppies just like Regeanomics did with Boomers. They get houses too!
US and EU tech players GAIN as they become a critical element in the Military-Industrial complex
BUT MORE IMPORTANTLY, the “war” forces us to move fast and break things, de-regulate where-ever red tape is putting us at risk of losing the war.
Drones, robots, AI, now we support US players and GET OUT OF THEIR WAY bureaucratically.
This is Peter Thiels Paradox of Violence – we get 3% GDP growth during violence and this stops everyone at home from fighting over how th epie is divided up.
—-
Now yes eventually we beat China, but beforehand our networks are fortified for the next century, our digital civil liberties are codified, we become unified culturally against a common enemy… the PRC, not the Chinese people -fortunately, it is VERY EASY to keep track of the PRC peeps their families, etc.
—-
And technically there is NO reason we couldn’t do all this WHILE STILL trading freely with China on non-tech, non-IP stuff.
All the better to keep the war as a race between competing for technologies, and intellectual property.
We can sell them farm stuff and energy and buy clothes and home goods etc.
And NOTE: it may be they keep buying Apple phones etc. They may care less overtime about invading everyone’s privacy globally and just want to control their own people.
29. January 2020 at 12:17
ChrisA, Unilateral free trade would be better, as you say, and Trump’s alternative is worse.
Michael, You said:
“loves Xi”? Okay—-and yes, like most Presidents he complements other leaders”
That’s misleading. Most presidents praise democratic leaders. Trump praises authoritarian leaders and belittles democratic leaders. Not sure why you don’t see that.
Morgan, Violence doesn’t help the US economy.
29. January 2020 at 15:58
Tech cold war:
https://www.wsj.com/articles/interior-department-adopts-restrictions-aimed-at-chinese-drones-11580295602
29. January 2020 at 16:42
The Federal Reserve raised interest on excess reserves by 5 basis points yesterday.
The Fed has been adding to its balance sheet in huge dollops since last November or so.
Monetary policy is not monetary policy when the Federal Reserve Board says monetary policy is not monetary policy.
30. January 2020 at 05:03
Scott——Re “loves Xi”. Bush looked into Putin’s soul and liked what he saw. Obama, was also cheery with “Vlad” on disarming the Poles. I cringe at all these things—-and I don’t even like bickering about them—-but by highlighting them—as you do—-is also misleading (I feel like a 5 year old). Plus it took the readers attention off the truly interesting topic—-“coupling” by poking people who do not want Warren or Bernie to become president.
30. January 2020 at 05:10
As Ben Cole noted, what is with Fed raising yield on excess reserves yesterday? Your forecast on less Fed caused recessions——-is dependent on Fed understanding why it does what it t does——and—being right about it. I don’t know, as you know, but this seems like the wrong move.
30. January 2020 at 12:10
More enlightened comments from Wilbur..
https://www.washingtonexaminer.com/news/wilbur-ross-claims-coronavirus-in-china-could-accelerate-the-return-of-jobs-to-north-america
30. January 2020 at 13:44
@ B Cole
Even if globalization causes an increase in class and ethnic tensions (and if it does not why mention it going “hand in hand?”) why does that “require” authoritarianism to deal with it? Even more when what authoritarians do in practice is o further increase class and ethnic tensions?
31. January 2020 at 16:28
Commentators have said in the past that the US has a pretty good leverage over China because it imports so much from China. Scott has always denied and/or ignored that.
Then Scott spent weeks spreading the theory that there will be no deal, that China has all the time in the world, which was of course never true.
Then the deal came of course and Scott has been spouting the theory that the deal won’t change anything, that the deal is just for show, and that the new import agreements by the Chinese are especially ridiculous and insignificant.
Now Scott is spreading the theory that the new imports are “of course” quite important and that this was basically the Chinese masterplan all along, because, you know, imports can give a pretty good leverage.
What absurd CCP propaganda piece comes next? Do you get the new guidelines sent to you every few weeks and then you think: Oh no how do I explain this new turnaround to my readers??? — Or do you really think up all this all by yourself??? And which explanation would be worse?
@Thaomas
B. Cole doesn’t say that it is “required”, he just describes what is happening, for example in the sense of cause and effect.
1. February 2020 at 15:14
Christian, I see you are lying again. I did not “spread any theories” in this post, just pointing out that the Trump administration’s position is inconsistent. Glad you agree.
5. February 2020 at 13:32
Scot,
Granted he has not called out China on human rights, although he has occasionally mentioned it…I don’t see any other president doing anything of substance either.
I don’t see Trump’s support holding despite offhand comments about odious world leaders. I see support holding because he is the only president to try to get the Chinese to change their behavior. Now, has he made progress? Well, some. Is he fundamentally going to change their behavior? Depends upon how much pain he wants to inflict (on them and by consequence on us), and how long he’s willing to do it. I believe his patience is longer than the public’s.
It is easy to criticize him. God knows there is a lot to complain about. But he is blessed by his opposition. Too many of the democratic candidates would make terrible presidents. The democrats better pray that Bloomberg gets the nomination, because too many of the others will scare the electorate into supporting the Donald.