To listen to media pundits, President Trump has created the trade-war crises with China. They say he is economically illiterate. Or he’s a dolt. Or he’s a xenophobe. Or a jingoist. And his impetuous actions are “roiling” markets and making businesses nervous and could tank the economy.
It’s all Trump’s fault. This is not just wrong, it is 180 degrees wrong and demonstrably so. In fact, Trump is the only American leader actually trying to right a substantial wrong.
The truth is that the China problem has been ignored or avoided by multiple presidents and Congresses from both parties, and certainly from the media and D.C. establishment, as far back as the late 1980s, but overtly since China’s entrance into the World Trade Organization. And it has always been a rightable wrong by United States leaders with some backbone and intestinal fortitude. So it has not happened.
Here’s what China has been doing.
The United States and many allies thought when China joined the WTO in 2001, the country would open its economy for more full trade. Until then, it had been utterly closed off to foreign companies even while it market-ized its formerly socialist economy. That’s actually part of the deal of being in the WTO — member nations are supposed to abide by free market trading principles to some extent. There was also the thinking that perhaps the Chinese Communist Party would allow more political and religious freedom as the country became more enlightened through trade relationships with the world’s industrialized democracies.
That, it turns out, was a bit of a pipe dream.
China has merely used its WTO membership to flood its trading “partners” with state-subsidized exports while throwing up numerous walls to continue blocking access to the country’s burgeoning middle class — including tariffs. They obviously continue their protectionist, controlling ways. And they continue to crush dissent and religious freedoms, including Chinese Christians.
“China has effectively used the multilateral trading system to its own advantage, enjoying the benefits of those rules of engagement while not always following those rules in spirit,” Eswar Prasad, a Cornell University economist and former head of the China division at the International Monetary Fund, told the Associated Press.
Or following the rules at all. But the comment shows how even the milquetoast IMF acknowledges China’s bad behavior, even if it soft-pedals it.
Because the reality is that it is much worse. From blackmailing U.S. companies and other foreign companies to gain entrance to the Chinese market, to secretly embedding spyware on the hardware they export, to stealing patents and creating cheap knock-offs, to product-dumping for market control to outright espionage and more.
This has meant the loss of likely hundreds of thousands and possibly millions of American jobs and wages over decades. That is a straightforward theft of prosperity. The same, though less, for Europeans who China also treats this way — although the Europeans are not quite the free-trade purists the U.S. attempts to be
Everyone knew. China is one of the worst trade actors on the world stage, not to mention a growing military threat beyond just their region. But no American leaders made the effort to do anything other than kick the can down the road — just as they did with North Korea’s nuclear and missile program and with our European allies in NATO paying their fair share for defense.
Economically, the result is a badly lopsided trading relationship: The U.S. trade deficit with China last year hit a record $379 billion. And their economic growth in part at our expense is funding a huge military buildup that does not rely on the traditional numbers superiority of the Chinese but on high-tech weaponry, including in space.
The trade deficit itself is not the end of the world, although it does transfer wealth, it does so in return for goods. I have a trade deficit so to speak with Walmart, Publix grocery store and Race Trac, to name a few. But that is because I don’t create goods or services I am trying to sell to them. U.S. companies want to sell to the Chinese people, but the government doesn’t allow it or cheats on it, and that is what is creating a lot of the trade deficit. The trade balance doesn’t have to be even. The trading market does.
Donald Trump the man has been harping on this problem for years, even decades. He was a lone voice because no one else wanted to poke the dragon. It was his initial issue when entering the presidential race. When he spoke to Florida Republicans about a week before coming down the elevator at Trump Tower to announce his bid, China was the focal point. It was not until he gauged the American people’s frustration at illegal immigration and the open southern border that he shifted focus, while still including China.
So this is the actual background for Trump beginning last year with tariffing some Chinese goods to get them to the table. They responded and talks went on for months, supposedly making progress and getting closer. Then the Chinese did what they always do, the week before the final negotiations and expected deal were to be announced, they reneged on every major commitment they had made. This worked with the likes of Barack Obama and other American leaders, who just backed down and got some gosh-awful deal that they misled the public about.
Not with President Trump, though. Trump tweeted two days later he was slapping tariffs on $200 billion of Chinese goods, which went into effect last Friday. Again, the media spun wildly at Trump’s actions, because of course they assume the worse and did not know or care about China reneging. Further, Trump spelled out plans for tariffs on another $300 billion. In response to tariffs on $500 billion of Chinese imports, China responded with tariffs on $60 billion.
And this belies the reality that we always had the vast upper hand if we would just wield it. The Chinese will have to come back to the table and they will have to give the U.S. a lot of what we want. Because the reality is that while both sides get damaged in a trade war, the Chinese are far more damaged than the U.S. To be blunt, they need us more than we need them.
“The United States has legitimate grounds to be upset with the Chinese,” said Mark Zandi, chief economist at Moody’s Analytics. “This has been building for almost 20 years.”
Exactly. And nobody would do anything about it until now.
EDITORS NOTE: This Revolutionary Act column is republished with permission.