America First: Will China Play Ball?

America First: Will China Play Ball?

March 2018 is becoming a radical period of change in United States trade policy with regard to China. The Trump administration has placed over $60 billion of sanctions on China, which includes restrictions on investment and tariffs on products, thus ushering in an era of US protectionism as a tool of economic hegemony.

This, of course, was not an unpredictable move, but one that has been consistently called for by US agencies. The US Office of Management and Budget issued a public brief in 2016 formally outlining US trade policy, explaining that, from medicines to software, China played a pivotal role in stealing US intellectual property. The agency estimated that the net worth of these intellectual assets has equated to, at minimum, $180 billion.

The harm, however, is not contained to $180 billion. For intellectual property contributes  over $6.6 trillion to the GDP, directly supports over 27 million jobs, and accounts for 52% of US exports. Chinese dependence on this theft is apparent as well, with almost three quarters of Chinese software imports being pirated. The Trump administration, in fact, ordered the US Trade Representative to investigate China for intellectual property theft in August, 2017, which led to the March sanctions being issued against China. Such sanctions, the president tweeted, were part of his vow to use every, “lawful tool to combat unfair trade, protect American workers, and defend our national security.”

However, the immediate market reaction to these measures was, to say the least, unpleasant. The DOW Jones closed 700 points down, and markets in Asia teetered on the abyss, recovering value by the end of the day. Moreover, China has responded to these sanctions as well, threatening $3 billion on tariffs of American products. Such reactions have produced a wider fear in the American populace, namely, that the president is moving towards a trade war with China.

Supposedly, the goal of these sanctions is to coerce a behavioral change with China, i.e. the enforcement of intellectual property rights. To evaluate the substance of this claim, it is important to understand the context of the sanctions, as research suggests sanctions maximize behavior change when the target underestimates the impact of the sanction policy, miscalculates our determination to impose them, and is given a clear path to relief.

These three factors are all true for China. Not only has the Chinese government resolutely, albeit foolishly, stood by its policy to survive and win any trade war, but also holds over $1 trillion of US debt. Thus, Beijing cannot successfully react to the United States' trade new policies without harming itself. This is further supported by China’s explicit statements, which have voiced a policy of avoiding a trade war if at all possible, statements that are granted legitimacy by China’s massive debt as a proportion to their GDP, which is predicted to rise to almost 300% by 2022. 

Furthermore, in contrast to China’s belief that US politics favor free trade, an active protectionist base in both the Democrats and Republicans undermines the legitimacy of this claim. And while polling suggests the political capital of protectionist factions have declined, the administration has hinted it may restrict student visas should the Chinese government retaliate, adding further impact to the already damaging sanctions.

Finally, the US has offered a clear policy for China to avoid these sanctions: halt the transfer of American intellectual property to Chinese companies. This is not an unreasonable demand, considering that the Chinese government has already taken extensive steps to seize Chinese technology companies often associated with such thefts, and controls over 40 million workers and their corresponding state operated enterprises. Such an advocacy, therefore, is not as broad and unreasonable as demanding a full reconsideration of an abstract, say, humanitarian policy, but a specific request to relinquish American property.

Many scholars have disputed whether these harms necessitate such actions. Liberals such as Mr. Chas Freeman, a previous American diplomat, argue that, “[The US] will not pass [as a global power] if we do not repair our national strategy deficit and rediscover diplomacy – measures short of war — to address the challenges of a rapidly changing international environment…” Thus, in the eyes of neo-liberals such as Mr. Freeman, the US needs to pursue multilateral options, such as the World Trade Organization (WTO). Unfortunately, this is hardly feasible. While the US Trade Representative, in a report to Congress, found that the WTO was successful in changing export behaviors, it hardly had an effect on import behaviors, especially IP theft. Others, especially neo-conservatives such as Mr. Kagan, have frequently contended that Chinese aggression can be mitigated by a progressive containment of Chinese hegemony through multilateral frameworks.

In practice, this has translated to aggression in the South China Sea―and while such a policy is not necessarily a poor choice; it fails to encompass a multi-pronged framework, one that encompasses both short term Chinese hegemony and long term Chinese economic growth. For instance, while president Obama was able to force China to back down in the South China Sea, he failed to co-opt a true long term change in behavior. Simply put, a purely short term policy of ‘sending a message’ only works to force temporary retreat, with China returning directly afterwards. Thus, it is necessary for the United States to push China where their paradigm exists; that area of involvement namely exists in their economic policy, which the US can easily influence.

Even for those still concerned, there is evidence that Trump’s employed strategy is already working. In fact, China’s foreign ministry stated on March 26 that it is willing to hold talks with the United States to resolve their differences over trade. As President Trump has argued, the US is losing: on trade, on immigration, on foreign influence. It is therefore the prerogative of the government to institute, what president Donald Trump has called, an America First policy, which aggressively safeguards America's economic interests from a country that has been manifestly disrespectful of fair play in international trade.

 

 

 

Congressional Republicans have abandoned Conservatism

Congressional Republicans have abandoned Conservatism

Chinese Economy: Saturation and Beyond

Chinese Economy: Saturation and Beyond