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Trump’s China Policy Is a Triumph
The president's trade war is bringing Beijing to heel.
U.S. President Donald Trump’s aggressive approach to China has been the most credible and consistent policy of an often-criticized White House. The president’s assertions of Chinese malfeasance in trade matters are undeniably true. Even CNN’s Fareed Zakaria, no fan of the president, has said, “Donald Trump is right: China is a trade cheat,” going on to praise the U.S. trade representative’s exhaustive report on China’s World Trade Organization noncompliance as a rare example of a quality document from this administration.
Despite dire warnings from establishment economists and media pundits that getting tough on China would damage the U.S. economy, we have seen nothing of the kind. The United States is not simply surviving the trade war but has thrived through two years of global stagnation. In the meantime, as best as can be told from highly unreliable and often-faked data, Chinese economic growth has stalled. The hard-line U.S. policy has been effective and should be maintained until China demonstrates real, substantial behavioral change such as no longer requiring forced joint partnerships and ceasing its vast state-run cyberespionage program. Holding Beijing accountable for its treatment of its own citizens isn’t too much to ask either.
Then-President Bill Clinton’s fateful decision to disconnect U.S. human rights policy from trade deals in 1993 removed America’s most powerful instrument for producing good in the world. As Presidents George W. Bush and Barack Obama subsequently adopted Clinton’s “business is business” policy, the Chinese Communist Party learned to exploit a complacent Western media to whitewash its authoritarianism, militarism, and repression and greenwash its environmental depravation.
Lazy American journalists eagerly reprinted half-truths generated by D.C. think tanks funded by the multinational corporations growing rich on the China trade, as well as quotes from professors at universities addicted to foreign student tuition fees and wealthy Chinese donors. Those who criticized China, as I did, were marginalized, maligned, and censored. U.S. firms such as Google and Home Depot found their attempts to actually access the promised mega-market wrecked by a system tilted in favor of China’s domestic champions. Still, the horrors of Tibet and Tiananmen were obscured by iPhones and corporate profits. Today, Americans enjoy movies from U.S. studios whose scripts are written to avoid offending the Communist Party and are blissfully unaware that over a million Chinese citizens are being brutalized in “re-education” camps designed to deprogram their religious identities.
Trump holding China’s hypersensitive authoritarians accountable to international standards of decency in trade was a badly overdue act of bravery, and one that perhaps only an unabashedly indiscreet leader could pull off. The very public shaming of Beijing over its blatantly closed markets, transshipment of products, export subsidies, abuse of joint partnerships, espionage, and technology theft has revealed the party’s claims as a sham. All of these facts are superbly documented in the aforementioned Office of the U.S. Trade Representative report and in the White House Office of Trade and Manufacturing’s report on China’s economic aggression. The emperor’s imaginary clothes vanished in a wink.
The promise implied by former U.S. Secretary of State Henry Kissinger and others that appeasing and enriching China’s brutal despots would align them with U.S. interests or liberalize them can no longer be defended with a straight face. Over the last two years, establishment pundits shifted from spouting nonsense about China’s inevitable progress toward capitalism and democracy to asking whether tariffs are the right way to confront a dangerous regime we all agree is built on lies and cheating.
The initial results are now in. The current trade policy has demonstrated its effectiveness, and it is undermining the Communist Party’s only source of legitimacy: ill-gotten economic growth. And on the U.S. side, it’s going to be easier to maintain than most people think.
The U.S. market remains the most valuable economic prize on Earth, something this week’s annual Black Friday consumption-fest underscores. It is, by far, the world’s largest economy, with a 2017 GDP of $19.4 trillion. That’s at least 60 percent larger than China’s $12.2 trillion and probably a lot more, as China’s dubious GDP figures bend to fit official targets.
Since consumption forms a much larger part of American GDP, the U.S. market for goods is many times larger than China’s. The United States is also the healthiest major economy, with robustly increasing GDP growth and the lowest unemployment rate in nearly 50 years. China is not likely to catch up in our lifetimes. Additionally, the United States has a much smaller population dividing those spoils—and being less burdened by taxes than their global counterparts, U.S. consumers can spend far more than the citizens of any large nation.
Most importantly, China is paying the lion’s share of America’s tariffs. While advocates of free trade have worked hard to scare consumers with threats of huge price increases, these have not emerged. This is because any additional cost incurred in the distribution of a product may be allocated to either the consumer, through higher prices, or to the producer, through lower margins. The market determines this split as consumers demonstrate their tolerance for absorbing higher prices. The elasticity of demand for products determines the price, and a recent European study by EconPol concludes, “A 25 percentage point increase in tariffs raises US consumer prices on all affected Chinese products by only 4.5% on average, while the producer price of Chinese firms declines by 20.5%.” And don’t forget that the entire 25 percent goes into the U.S. Treasury, feeding America’s economy, not China’s. If Chinese prices eventually do increase, the same system will force distributors and retailers to absorb the cost before consumers. Their suppliers are already moving to non-China sources.
Significantly, none of this success is accidental. Many of this administration’s political appointments have been criticized, and the president has removed several of them. Trump has even publicly expressed regret over his appointment of Steven Mnuchin as treasury secretary. In contrast, the team at the White House National Trade Council, the Department of Commerce, and the Office of the U.S. Trade Representative have been brilliantly strategic in the face of a relentless, China-backed media attack on the trade policy. The EconPol researchers recognized this when they wrote, “The US government has strategically levied import duties on goods with high import elasticities.”
Whether or not you agree with the tactics crafted by White House trade advisor Peter Navarro (with whom I wrote a book), Commerce Secretary Wilbur Ross, and U.S. Trade Representative Robert Lighthizer, this operation has been professionally planned and executed. Knowing that China would quickly move to disguise its products in transshipments, the Trump team expertly renegotiated complex deals with South Korea, Mexico, and Canada in record time. A critical and disorganized Europe has been left scrambling to reassess its China relations, lest its market become the dumping ground of last resort. Investors buying in to the media prattle that U.S. trade policy has been ill-informed or that soybeans are somehow more important to the United States than technology do so at great peril.
In the face of this success, free trade backbiters are now calling for negotiations. If you are under any delusion that this time, the Chinese government will take a trade agreement with the West seriously, I encourage you to read Articles 33 through 41 of the Chinese Constitution, which reads like the U.S. Bill of Rights. This document specifically protects human rights, freedom of religious beliefs, freedom from illegal arrest, freedom from unreasonable search, freedom of speech, and the right to vote and protest. None of these things actually exist. Like the regime’s official name, the “People’s Republic,” rule of law in China has always been a lie the West agreed to accept. The Chinese Communist Party does not respect the rule of law—it respects strength and power.
The U.S. president and his team should stay the course, both for America’s sake and for China’s. Reducing the economic influence of an aggressive authoritarian regime is the right thing to do for the world and, eventually, for the Chinese people. They shouldn’t bother with an agreement designed only to delay the other side and that will never be honored. The new Democratic majority in the lower house of the U.S. Congress and establishment Republicans who otherwise oppose the president should re-evaluate the current trade policy in light of the positive empirical results and eschew the illusory arguments of those who benefit from enriching a dangerous and tyrannical regime.