Friday, December 23, 2016

Reorienting China

The Donald is getting a serious taste of the tortuous future his uncharted course into diplomatic, trade and military brinksmanship will go. Even as he cozies up to Russia, China is about to teach the Donald exactly how much power they can wield against Trump coercion… well beyond that little stash of almost $1.25 trillion in U.S. currency reserves that they could dump at extreme peril to the value of the dollar, both in hard economic terms and as the mainstay as the global reserve currency.
We are getting little glimpses of that Chinese ire, including a massive slowdown in any PRC approvals required where money is slated to be exported to the United States (as profits or investment capital). To call what is allowed even a trickle is an understatement. I began addressing these realities in my December 3rd blog, Does the U.S. Really Win a Trade War with China?, but in the weeks that have followed, the situation has only deteriorated further.
Trump’s questioning of the long-standing “one China” policy is raising the Sino-America stakes at every level, diplomatic, economic and military. Even in military terms, we are getting less-than-subtle Chinese responses and slaps. “[Recently,] China seized a U.S. Navy drone. The capture signaled Beijing’s displeasure with U.S. reconnaissance in the South China Sea, but avoided endangering U.S. personnel and giving Washington a reason to escalate.
“Get used to this. Attacks on remotely controlled vehicles — drones — may become a new currency for coercive diplomacy, enabling nations to challenge rivals without hurting an opponent’s military personnel — and so without risking significant escalation.
“So far, states appear to react differently to drones than to manned assets, even though the two are equivalent under international law. Both unmanned and manned military vehicles can freely navigate and fly over international waters and through international airspace. At the same time, states maintain the right of self-defense against any vessel or aircraft — manned or unmanned — that penetrates national airspace without authorization or poses a threat when operating in a state’s territorial waters.” Washington Post, December 23rd.  Hey, but Donald is upping the stakes with a pledge to grow our nuclear arsenal. Yup, that’ll help.
China is also openly courting Philippine strongman, President Rodrigo Duterte, and driving a deep wedge between what we once-perceived to be a strong regional (military) ally and the United States. One can expect China to move increasingly to pull other regional powers into their orbit. After all, Trump has gone out of his way to tell the world that our allies are not paying enough in our mutual defense treaties – hence we need to reexamine our commitments there – and that we still have trade issues with regional allies. China is smiling with gratitude. Should Trump actually make good on those threats, it is unlikely that those nations would ever trust the United States again… even if a subsequent president were to try and reestablish the broken or damaged ties.
Further, with Donald Trump clearly withdrawing the U.S. from any potential Pacific Rim trade alignment under the Trans-Pacific Partnership accord, China has joyfully stepped into the void – rather firmly establishing herself as the primary player in the regional supply chain at the expense of the United States. Under this new configuration, China expects to build its own exports and set labor and environmental standards in the fast-growing Asia Pacific region through  a competing Asian trade agreement  the Regional Comprehensive Economic Partnership (RCEP) – that would clearly exclude the United States. We’d just be out of that loop.
Trump has accused China of currency manipulation and threatened to hit their exports to the U.S. with high tariffs. He seems to be addicted to his double-downs. As President-Elect Trump has nominated a vitriolic anti-China player, Peter Navarro, to the post of our trade advisor, China is preparing its own initial blast against Trump’s stated policy of bringing the People’s Republic to heel in economic trade practices. And remember, in China, reports in local newspapers are rather direct statements from the government itself.
“[With] President-elect Donald Trump’s appointment of a noted China hawk as the new director of trade and industrial policy, things just got even more testy for the country’s Community Party-controlled press… There is real cause for concern,’ said an editorial Friday [12-23] in the China Daily, headlined ‘Alarm bell ringing.’ The article described Trump's choice of Peter Navarro, author of the book Death by China, as ‘no laughing matter.’
“The Global Times, a state-run newspaper known for its strident nationalism, was even more blunt… China needs to face up to the reality that the Trump team maintains a hard-line attitude toward China,’ it wrote. ‘It must discard any illusions and make full preparations for any offensive move.’” Washington Post, December 23rd. What might those preparations entail? The December 22nd Wall Street Journal has noted that, should Trump remotely try and made good on his threats,  China’s Ministry of Commerce is prepared to hit the United States at some of its most vulnerable points:
Among China’s likely targets, say trade experts: Boeing Co. aircraft and U.S. farm exports from Midwestern Republican states. Canceled Boeing orders would hurt U.S. shareholders, labor unions and the U.S. trade deficit, prompting pressure on the new administration, said Derek Scissors, an economist at data provider China Beige Book International. As of last month, China is awaiting delivery of 292 Boeing jets. [The European Union’s Airbus is praying!]
“Blocking soybean or other U.S. food exports would prompt action by Republican Senators whose constituents lack a large manufacturing base… Beijing also could look to pressure U.S. multinationals such as General Motors Co., which relies on China as its largest sales market… 
“To retaliate, China also could make use of informal trade barriers—making health claims against American food products, for example—that are highly technical and difficult to counter in the WTO but hurt U.S. exporters, some experts said.” WSJ. 
“[F]or U.S. executives with big economic stakes in Greater China, [Trump’s anti-China] bravado poses huge forward risks if the president-elect is anywhere near serious. Any move to elevate the international status of Taiwan, which China views as a renegade province, would likely elicit an immediate and forceful response and endanger a two-way trade relationship that reached $627 billion in 2015.
“China has obvious leverage of its own: namely, the $145 billion in planes, computers, machinery, chemical and agricultural products and array of services that U.S. companies imported from the mainland in 2015. Beijing also has enormous clout over Taiwan, whose economy is steadily becoming intertwined with the mainland…
“Already, Chinese billionaire Wang Jianlin, chairman of the Dalian Wanda Group Co., has said that the jobs of his 20,000 U.S. employees would be in jeopardy in the event of a trade war, speaking at a Saturday conference in Beijing. ‘To deal with Trump’s threats, China has a full toolbox,’ warned an editorial Tuesday in the Global Times, a newspaper published by the state-run People’s Daily group and known for its hawkish, nationalist tone.
“Among the most vulnerable would be Silicon Valley tech giants with extensive supply networks in Asia, particularly Taiwan. ‘Technology companies are quite nervous,’ said Eric Huang, a board member of the Monte Jade Science and Technology Association in Silicon Valley who is also chief executive of a startup accelerator.”, December 13th
With powerful American companies, generating billions of dollars of economic flow to the benefit of the United States, acting a lobbyists on behalf of China, you can expect efforts to be directed not only at the Trump administration itself but to Congressional leaders, many of them Republican, whose local district and state economies would be horribly slammed should China implement hits on some of the above-noted economic targets. And if those efforts do not provide immediate results, you can expect the retaliation to escalate.
Since shifting manufacturing to the United States moves production to highly-automated plants – where there are very few hands-on employees picking up the work – who exactly are the beneficiaries of high tariffs on PRC goods? Labor or those who own the machines? Tariffs, assuming Congress would even permit them, would simply make goods that much more expensive for just about all Americans. Any way you look at this set of potential trade moves, ugly remains ugly… and can get a whole lot uglier.
I’m Peter Dekom, and Donald Trump has never dealt with a company even one one- millionth of the size of China.

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