When even China hawks and doves agree, it’s time for Trump to tell Americans the painful economic truth about the US-China trade war

  • Robert Boxwell says despite their differences on China, hawk Peter Navarro and dove Henry Paulson agree there is no quick fix to the trade war
  • China hasn’t made enough progress on fundamental issues of concern and is now perceived as a national security threat to the US
PUBLISHED : Saturday, 17 November, 2018, 2:03am
UPDATED : Saturday, 17 November, 2018, 2:52pm

Peter Navarro and Henry Paulson, two Americans with vastly divergent views on trading with China, made speeches last week that indicate a speedy resolution to the US-China trade war may be hard to find.

White House trade adviser Navarro, speaking at the Centre for Strategic and International Studies in Washington, criticised Wall Street bankers and American “globalist elites” for interfering in the Trump administration’s trade negotiations with Beijing.

Calling them “unregistered foreign agents”, he said, “As part of a Chinese government influence operation, these globalist billionaires are putting a full-court press on the White House in advance of the G20 [summit] in Argentina”, where US President Donald Trump and Chinese President Xi Jinping are scheduled to meet later this month.

Navarro’s 2012 book, Death by China: Confronting the Dragon – A Global Call to Action, as you might imagine, doesn’t advocate expanding the two countries’ trade. His detractors call him an “extremist” when they’re in polite company. His comments about “globalist elites” were the focus of news coverage, but his 45-minute speech was substantive.

He spoke about the administration’s efforts to restore the US manufacturing and defence industrial base, noting that “economic security is national security”. Americans, by meddling in the trade talks, are undermining Trump’s efforts not just on trade but also on national security.

It’s a very American thing to go on cable news or write an op-ed and tell your president how to improve his job performance. But it’s an entirely different thing to visit Beijing and speak out afterwards against the policies of the US government.

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Since the trade war started, a steady stream of Americans, “old friends”, as Chinese Vice-President Wang Qishan calls them, has been travelling to Beijing, ostensibly to help China’s leaders understand what Trump is really thinking. Most have two things in common: a financial stake in business as usual between the US and China and a disdain for Trump.

Their mantra is that “tariffs are bad” and “nobody wins a trade war”. But, given the way bilateral trade was heading, the US was on a trajectory to lose the trade peace. Many Americans believe trading with China has diminished US manufacturing competitiveness and harmed its national security.

The US business elite believes that all Beijing has to do to “win” the trade war is to convince the US to go back to business as usual – strike some deal under which Beijing promises to buy more American goods and stop the various ways it forces technology transfer so the US can declare “victory” and lift the tariffs.

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Trump’s detractors focus on the trade balance – it’s not really a problem, they say – while whistling past the graveyard of the US loss of its intellectual property and technological lead. They say tariffs are bad, but no one proposes a solution to stop China’s acquisition, one way or another, of US intellectual property.

That’s because the best solution may be to keep China away from it – or it away from China – and that solution is very much not business as usual.

Towards the end of his speech, Navarro projected a chart, which listed “China’s acts, policies, and practices of economic aggression”. These included “Cyber-enabled espionage and theft” and “Forced technology and IP transfer”. He told an anecdote about a negotiating trip to Beijing to illustrate how far apart the two sides are.

He describes sitting down across from the Chinese team and putting down a “long list of demands” to which the Chinese side’s response was, “We don’t engage in cyber theft. We’re the biggest victim of cyber theft. We don’t force technology transfer.” Making a gesture of frustration, Navarro asked, “How do you have a deal with somebody if they don’t even acknowledge your concern?”

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He noted that there were over 50 such acts, policies and practices of economic aggression on the list, all “structural” issues, and that even if the two sides resolved 25 of them, the national security problem still wouldn’t go away.

In short, because of the publicity Trump’s administration has given these national security issues, it’s hard to see him backing down.

Former Treasury secretary Henry Paulson, arguably Wang Qishan’s best “old friend”, now also paints a dark picture of the relationship. As head of Goldman Sachs in the 1990s, Paulson advised Jiang Zemin and Zhu Rongji on the painful economic reforms they began.

Speaking at Bloomberg’s New Economy Forum in Singapore last week, he warned that the US-China “healthy strategic competition” was at risk of tipping into a “full-blown cold war.” He was blunt in his criticism of Beijing, noting that “China still hasn’t opened its economy to foreign competition in so many areas,” and deploys a number of “non-tariff barriers to trade and investment”, saying, “this is simply unacceptable”.

He noted, significantly, that “this negative view of China unites [American] politicians from both the left and the right, who agree on nothing else”. Within the American political establishment, “China is viewed by a growing consensus not just as a strategic challenge to America, but as a country whose rise has come at [America’s] expense”.

Trump’s biggest challenge may be keeping on his side the bipartisan swathe of Americans that Paulson noted. To do that, he will have to convince Navarro’s “Wall Street bankers and globalists” to “stand down”. But Beijing would probably like its “old friends” to stand up, on their chairs even, and continue their criticism of Trump.

Listening to Navarro and Paulson, one can’t help but sense that the US-China dispute won’t be quickly or easily resolved. If that’s the case, it’s time for Trump to speak frankly to Americans and tell them to expect to feel some economic pain ahead. He hasn’t done this at any point during his presidency, but it’s hard to see a protracted trade war not inflicting pain eventually on the peoples of both countries.

The world has surely seen more dangerous geopolitical conflicts over the past seven decades, but it is hard to think of any more complex or convoluted.

Robert Boxwell is director of the consultancy Opera Advisors