US-China Trade: It’s Politics, Stupid!

The trade spat between the United States and China isn’t about deficits or tariffs. It’s about Pennsylvania, Wisconsin, Ohio, Michigan.

The view from Beijing is that Republicans and Democrats are united in using China as a bogeyman because they need someone to blame.

Donald Trump’s anti-China message helped him win these states, and he knows that the path to a second term in the Oval Office door runs through these states in 2020.

Bill Clinton, George W. Bush and Barack Obama believed that China’s integration into the global economy would lead it to democratize and that U.S. dominance at Beijing’s doorstep in East Asia would continue.

A naive miscalculation

It was a miscalculation that bordered on the naïve. Domestically, China has been increasingly repressive since Xi Jinping became president, but its economy has gradually opened up.

As the U.S. Chamber of Commerce in 2018 stated in a study on intellectual property: “Unlike many of its developing economy peers, China is making concrete progress in building a 21st century national IP environment.”

The reason for this is not based on altruism, but on reality. Chinese companies have gotten better at invention. Consequently, Beijing has a stake in creating (albeit slowly) a legal system that protects inventions from being ripped off.

China is making the very transition that previous U.S. presidents hoped it would. But politically, it’s better to be tough on China — reds under the bed. Hardly surprising, as they probably made it in the first place, along with your computer, electrical appliances and your clothing.

China’s middle-income trap fear

Beijing has one great fear — the “middle-income trap.” This could trigger political instability. The unwritten agreement between Beijing and the Chinese people is: You stay out of politics, we’ll make it worth your while.

In practical terms, this means that rising wages must not undermine the advantage of China as a center of low-cost manufacturing before it develops the capacity to produce higher-value goods. Assembling, the rationale goes, must be replaced by inventing. Otherwise economic growth will stagnate and popular unrest will follow.

Beijing controversially requires many U.S. companies to create joint ventures with Chinese firms in order to sell to Chinese consumers. How could they? It’s akin to stealing in American eyes. A White House report last year cited these joint ventures as evidence of “How China’s economic aggression threatens the technologies and intellectual property of the United States and the world.”

China is not alone

But this is not unusual. According to the U.S. Chamber of Commerce, which last year ranked 50 countries on how well they protect the intellectual property of foreign companies, China ranked above Turkey, Brazil, South Africa and the Philippines, just below Mexico and six places below Canada.

Beijing does not deny that its rise has cost U.S. jobs. But it also points out that it produces goods that millions of Americans benefit from at a lower cost.

Where are the homemade solutions?

A better safety net for Americans, retaining health care if they become unemployed, retraining programs, an option to be able to send your children to college without incurring massive debt, would greatly lessen hardship in the world’s leading economy. These surely are the issues that should be addressed with at least as much vigor as tariffs on Chinese goods.

China too has problems, many of them similar to those of Americans. High medical costs, exorbitant college fees, inadequate social security and migrant workers from rural areas who are denied basic services after they arrive in major cities looking for work. But it has brought the vast majority of its population out of dire poverty.

In the 1960s, U.S. President Lyndon Johnson launched what he called America’s “War on Poverty.” His ultimate goal was to ensure that all children, “whatever the economic condition of their parents, can start life with sound minds and bodies.” He had a slogan for his war: “The richest nation on earth can afford to win it. We cannot afford to lose it.”

Leading the fight against poverty

China has lifted 800 million people out of the miseries of extreme poverty, more than anywhere else in the world. Between 1990 and 2005, it accounted for more than 75% of global poverty reduction and is the reason why the world reached the UN millennium development goal of halving extreme poverty.

The country’s goal is to completely defeat poverty by 2020. An ambitious goal, certainly — but what a goal to set.

Conclusion

The China threat has galvanized American politicians, but sadly mostly for playing blame games. China is not perfect, far from it, and it has challenges that it must overcome. Does it try to use trade to its own advantage? Certainly. Is it alone in this? Certainly not.

China is changing and no one can say for sure how these changes will play out. But China is not America’s problem. It may even be part of the solution. But you won’t hear that on the campaign trail.