Trade Wars and Political Power

Ho Chi Minh City (Saigon), Vietnam

If anybody tells you, China isn’t suffering massively from Donald Trump’s tariffs, they are lying through their teeth. Will China crack and kowtow to Trump’s demands? They definitely will come to the table, sooner rather than later, and they definitely will make concessions… but probably not remotely to the degree that Trump wants – even though he will undoubtedly pretend he pulled off the “most brilliant trade concessions in history.” Any commitments to “buy more American” will be, of course, completely unenforceable.

If Xi Jinping were really to submit to Trump’s litany of demands, he would begin to lose not only his cachet/influence within all of Asia, but his own political support system would erode beneath his feet. He’s in a tough spot, but he has no choice but to push back. Still, the pressure from the massive China-business sector, fully private and partially public (80% of China companies have some real affiliation with the government), is immense.

It all seems stupid since the notion of China’s taking jobs by reason of its cheap labor is a red herring. After all, labor isn’t so cheap in China anymore; there are many, many countries (from Vietnam to Bangladesh) where labor costs are much lower, and skills are sufficiently high, to sustain an export market to the West. Though you’d never know this from speaking with blue collar workers in the rust belt, American job loss from globalization is an issue that left the building about a decade ago.

Today, automation driven by artificial intelligence is what really hits American workers. Not a China issue. We know that AI-job-loss isn’t an issue on Trump’s agenda, since his mega-wealthy cronies are the ones who own the automation that is putting Americans out of work or shoving them into the lower-paying sectors of the economy. Income inequality on steroids. So Trump can use an issue that Americans mistakenly think matters still – “globalization” – to divert attention from job-replacing automation.

Further, China doesn’t really have an equal chair in a trade war. China does not import a lot of “goods” from the United States… mostly agricultural products… but the vast array of U.S. service providers in the PRC, from financial to tech advisors, is massive. For example, China’s net travel surplus of $28 billion (Chinese dollars spent traveling to the U.S. less U.S. dollars spent traveling to China) is a bargaining chip that the PRC has yet to play. Already, without governmental restrictions, Chinese travel to the U.S. is falling. Should the PRC clamp down on their citizens’ wanting to travel to the U.S., that full $28 billion surplus in our favor would vaporize, sending a nasty shudder through the U.S. travel industry with a ripple throughout the overall economy.

On the other hand, where China truly rubs the United States the wrong way economically is their bad habit of stealing intellectual property, patents and copyrights, through disclosure requirements from companies that want to business in the People’s Republic to out-and-out hacking sensitive university and corporate servers, engaging in industrial espionage, and drilling into relatively weakly-protected U.S. government servers. This just may be the quarter where U.S. trade interests are the most legitimate.

Immediately after he was elected, Trump pulled out of the proposed 12-nation Trans-Pacific Partnership (TPP) trade agreement, which he claimed was the worst trade proposal in history (I guess after NAFTA). By doing so, he also surrendered a whole pile of protections for American patents, copyrights and trademarks, particularly focusing on meaningful enforcement and tracking.

Trump’s inane obsession with “bilateral” (vs multilateral) trade agreements (where he believes the United States has the greatest leverage) brought a temporary smile to Chinese government leaders. They instantly moved China – once the most isolated and the global trading nation on earth – to become the spokes-country for globalization… as the United States moved towards go-it-alone isolationism. China began assembling a regional replacement for the TPP… minus the United States. Clearly, regional nations began to realize that relations with China were much more important than continuing reliance on what was becoming an “unreliable” ally, the U.S.

But part of the TPP also had provided a more level playing field for workers in participating nations. Issues like child labor, working conditions and pay scales were important features of that agreement. The United States had used the proposed treaty to foster human rights, an element that vaporized when Trump signaled that he would never accept the multiparty agreement. Some nations who had wanted to participate in the TPP realized that they were no longer under any real pressure to prioritize human rights. Given his “cultural proclivities” even here in the United States, human rights do not seem to be a Trump concern anywhere.

But the harm done is real. Vietnam is a perfect example. “[With the TPP withdrawal, Trump] set in motion a political and economic storm that is still reverberating in Vietnam.

“Freed from conditions imposed by the Obama administration to join the trade pact, Vietnam’s communist government has scrapped plans to allow independent trade unions and unleashed its most severe clampdown on dissent in decades. Authorities have arrested scores of social activists, bloggers and democracy advocates, sentencing many to jail terms of 10 to 20 years.

“Vietnam offers an example of the little-noticed fallout from some of Trump’s earliest decisions. The Trans-Pacific treaty, known as the TPP, quickly faded from U.S. headlines as Trump launched high-stakes trade battles with China, Europe, Mexico and Canada. But the abrupt policy change has had far-reaching ripple effects, diplomats and activists say.

“‘As soon as America withdrew from the TPP, you saw a radical change in the way [the Vietnamese] government treated workers, labor activists and unions,’ said labor activist Do Thi Minh Hanh, 33, speaking in a cafe in Ho Chi Minh City. ‘A lot of people have been harassed, followed, imprisoned and threatened.’…

“Trump’s policy change wasn’t the only factor in the Vietnamese crackdown — hard-liners had become dominant in the Communist Party and were concerned about a rise in social activism and protests. The United States’ decision to craft and then exit from the TPP struck an enormous blow to the nation’s credibility in Asia, one that China was not shy about exploiting.

“The decision also exacted a real human cost in Vietnam, activists say.

“As the TPP was being negotiated, a budding movement of Vietnamese activists used social media to spread ideas about workers’ rights, transparency, accountability and even democracy. The U.S. government had engineered the trade agreement to also secure promises from Vietnam’s leadership that it would permit independent trade unions, strengthen environmental controls and allow a free and open internet.

“When the TPP was scrapped, that dynamic was thrown into reverse.” Los Angeles Times, October 29^th.

In the end, the global impact of Trump’s misinformed, stumbling and bumbling policies – many of which even fly in the face of GOP doctrines (free trade, fostering democracy, lower deficits, etc.) – from our credibility and influence to environmental and human rights policies, has been monumental, well beyond what most Americans realize. And trust me, we have very little to be proud about; the near-term and long-term costs to all Americans, in hard dollars as well as power and influence, will be catastrophic… even if we stop the missteps now.

I’m Peter Dekom, and never before in the history of the earth has more raw power been in the hands of less competent leaders.