China-US relations

Will Trump’s hard line on US trade with China mean the end of business as usual?

Robert Boxwell says the Trump administration, which appears ready to tackle head-on America’s multifaceted trade conflicts with China, should be clear about its plans

PUBLISHED : Sunday, 29 January, 2017, 1:02am
UPDATED : Sunday, 29 January, 2017, 5:46pm

US President Donald Trump’s cabinet picks expressed divergent views on some issues during their Senate hearings, but they mostly seemed in agreement that US trade with China, as it stands, isn’t working. Americans who haven’t benefited from globalisation largely agree. Those who have benefited – from what cynics call a vast transfer of wealth from the US to China – don’t.

The US trade relationship with China has evolved since Richard Nixon and Henry Kissinger began crafting a strategy to normalise relations with Peking – as it was then known in the West – largely to counterbalance the Soviet threat of the day. Just weeks after Nixon’s inauguration, Kissinger wrote in a memo to him, “We have one more major play to make in this string – the offer to resume non-strategic trade with the mainland.” The “string” was negotiations to normalise relations without, as they later called it, “[selling] Taiwan down the river”. The two thought of trade as little more than a useful bargaining chip.

China will be the clear winner if Trump declares a trade war

Today’s trade conflict stems from a combination of factors that includes the willingness of successive US governments to accept long-dated promises of reform – not kept by Beijing – in return for Chinese access to American markets, and a cynical, short-term view by American business about handing over technology and know-how in return for access to China’s markets. Because, while American CEOs drooled over the thought of selling to China’s billion customers, the country’s per capita income was US$194 in 1980. Now that tens of millions are reasonably middle class, Americans see Chinese companies, American technology and know-how in hand, pushing them out, often with the help of Beijing.

US consumers, on the other hand, to whom Chinese businesses had access as soon as they became competitive, were rich, or spent like they were, with banks handing out credit freely. Since 2001, Americans have spent almost US$4 trillion more buying China’s exports than Chinese have spent on America’s.

Beijing, nursing a two-century grudge, was never going to fall in behind American leadership or Western institutions. This was always clear

The unstated goal of starting to trade with China in the 1980s was consistent with an American post-war philosophy evident throughout the developing world: help countries develop and prosperity would lead to peace, freedom and democracy, all of which would counter the threat of communism. But Beijing, nursing a two-century grudge caused by what the nightly news still reminds Chinese was the humiliation inflicted on it by Western imperialist barbarians, was never going to fall in behind American leadership or Western institutions. This was always clear.

In May 1970, while Nixon and Kissinger were discussing how to break the ice, Mao Zedong (毛澤東) issued a statement related to the American involvement in Cambodia that Kissinger summarised for Nixon in a memo: “US imperialism, which looks like a huge monster, is in essence a paper tiger, now in the throes of its death-bed struggle.” Comparing it to earlier statements from China, Kissinger’s assessment – a self-serving rationalisation perhaps – was that Mao’s rhetoric was getting milder. Once the meetings started, Mao, Zhou Enlai ( 周恩來 ) and Deng Xiaoping (鄧小平), all hardened communists, regularly harangued and mocked their American guests about Western imperialism and the people’s revolution that was surely coming soon to their neighbourhood.

Yet Nixon, Kissinger, and later Jimmy Carter and his lead negotiator, Zbigniew Brzezinski, largely ignored the insults and pressed ahead. In the end, they both sold Taiwan down the river and resumed trade, including relaxing restrictions on selling sophisticated computers and other hi-tech products to China.

One advantage to having some hardened old capitalists coming into the Trump administration is that they understand, first-hand, what the problems of doing business with Beijing are

The evidence of what the future held was immediately abundant following normalisation in 1979. Yale historian Jonathan Spence wrote that China projected it had 433 students in the US in 1978, most of them studying the sciences, engineering, technology and maths. Five years later, according to The New York Times, there were 10,000. Beijing’s policy was always heading in this direction – learn to do it then cut out the teachers.

That’s why access to China’s markets is shrinking, not growing, especially since Xi Jinping ( 習近平 ) came to power in 2012 and began doubling down on Chinese nationalism. He arrived in the wake of the financial crises of 2008 and 2011, when it was reasonable perhaps to conclude that China’s ascendency was imminent. Businesses are out, newspapers have been banned, companies like Apple are under attack, all in some version of a Chinese dream that has little need for foreigners.

It wasn’t long ago that they were expelled en masse by Mao and communist China’s other founding fathers, whose imperialist-hating dogma is as sacrosanct for China’s leaders today as the words of America’s freedom-loving founding fathers is for America’s. It’s who both sides are, and it’s not going to change.

China can best answer Trump’s trade threats by improving its own economy

It is understood that many mainland Chinese view doing business with the West in military terms, as a cutthroat, zero-sum war, a view incompatible with the basic tenet of reasonably equal exchange. Thus, mainland Chinese businessmen offering a “win-win” have come to be viewed sceptically by foreigners over the decades, even overseas Chinese. A senior manager at New World once told me that Hongkongers fretted when they went to Shanghai on business, wondering how the locals were going to cheat them. That was surely an exaggeration, but perhaps not a big one.

Just how far will reckless Trump push China?

One advantage to having some hardened old capitalists coming into the Trump administration is that they understand, first-hand and in great detail, what the problems of doing business with Beijing are. Western complaints about dumping steel and aluminium, cyber theft of trade secrets, mainland acquisitions of strategic assets in technology and media, combined with belligerent talk about the South China Sea and Taiwan, all seem to point to the end of business as usual between the two countries.

In between doing nothing and total trade disengagement are myriad variations, about which both sides claim to have an upper hand. Whatever form the changes take, they probably won’t be cinematic. Trump’s announcement last week of America’s withdrawal from the Trans-Pacific Partnership indicates a hard line on trade generally, but he offered little else in the way of a Plan B. Whatever the administration’s plans are, it would be helpful to communicate them clearly, and soon, to America’s allies and friends, and to Beijing, to minimise possible misunderstandings that could make finding positive solutions harder.

Robert Boxwell is director of the consultancy Opera Advisors