Under considerable pressure from the Trump administration, Mexico and Canada worked out a renegotiation of the NAFTA agreement. Under threat of a 25 percent auto tariff, the EU is negotiating with the U.S. Japan and the U.S are starting negotiations. Of course, the deal with South Korea has been negotiated and signed.
There are people who refuse to recognize any of these very real happenings, only voicing their opposition to tariffs. In principle, we agree that tariffs should only be a short-term tool to bring other countries to the negotiating table. Most of the pile of tariffs put into effect by President Donald Trump’s folks will fall into that category with most of the world. Lots will fade away with the negotiation of a trade treaty.
The exception might be the steel and aluminum tariffs. They were definitely imposed with the protection of those industries in mind and if they were just eliminated, the re-openings of mills and new jobs would likely go away. It is likely that the administration will attempt to replace them with quotas on steel and aluminum from other countries.
Of course, tariffs as a weapon to bring a country to the negotiating table were primarily meant to bring China and, perhaps, the EU, to the table. We doubt anything else would have brought China in to talk. No country has abused free trade rules, benefited from trade with the U.S., and has the huge economic impact more than China. In fact, it was probably their view of the economic consequences that has kept previous administrations from pulling out all the stops against China.
There was no doubt that imports from China did much to supply American consumers with cost-competitive goods at higher quality levels than years ago. While President Trump decided that it was high time to draw the line from that standpoint, to reduce the pressure on manufacturing jobs in America, that may not have been the deciding factor.
We must keep in mind that China had no concept of private property until very recently in their history. A citizen’s life and his goods were property of the government. With no private property, neither was there private property for groups of individuals organized as companies. The concepts of intellectual property or patents did not exist. Evidently it was not too big a leap for them to figure out the best way to advance in technology and manufacturing expertise was to grab the best of what the rest of the world had come up with and add it to their own creativity and vast labor resources.
They used industrial espionage—like much of the rest of the world—but figured out the fastest way was to allow the best companies in the world into China but force them into joint ventures, require them to divulge their secrets, force technology transfers, and forbid them to have full control of the joint ventures. It might look like highway robbery to us, but to them it evidently looked practical and smart—especially if the rest of the world let them get away with it.
And like other socialist countries, they used large sums of public money to create huge, state-owned companies really early in their history to compete with the biggest companies in the world.
So, President Trump is not asking China to compromise on some trade deals. He is insisting that they do a major overhaul of their business model: No overt piracy of business secrets and patents, no forcing companies in joint ventures to turn over intellectual property, no technology transfers, and no state-funded companies competing on the global stage. Those fundamental requirements are why the Chinese have dug in as hard as they have.
In addition, the need to figure out how China can save face—typically a little more important in Asian cultures—is a challenge to Trump negotiators. There is a substantial list of cultural, historical, and governmental reasons complicating such movements.
Michael Pillsbury, a China expert with the Hudson Institute, likened the situation to a group of cabinet secretaries from China showing up at the White House and giving us two years to amend our Constitution and give up our free market economy.
These factors are critical to China’s reluctance to engage, even given the major pressures it is feeling. China’s economic growth is slowing, its currency has sunk against the dollar, it has lowered reserve requirements for banks multiple times to stimulate lending and its debt is increasing in a year slated for debt reduction. China has also accumulated military goals much more ambitious than we are used to seeing from anyone but Vladimir Putin.
So, while it is not impossible for us to envision fairly logical paths and solutions for trade issues with our North American trade partners, our Asian or EU trade partners, the battle with China is different. And while China is pretty much presently under the tight control of President Xi—closer to a dictator than any Chinese ruler in decades—overhauling the business model is still a tall order. Even dictators must find ways to bring the population along with them, if they expect to remain in power.
And if there is anything Chinese leaders fear, we’re told, it is an uprising by the population segments or geographic regions of the country that have not shared as much in the improved economic conditions of China in recent years. — Steve Dittmer, Agribusiness Freedom Foundation
(Editor’s note: This originally ran on Oct. 15, 2018 as the AFF Sentinel Vol 15 #38. It has been reprinted here and mildly edited for currentness with permission of the author.)
