By trade correspondent L.C. and the editor
What is one to conclude from the overwhelming victory of pro-democracy candidates in Sunday’s Hong Kong municipal elections and the publication last week in the Western press of Chinese Communist internal documents revealing the party’s incarceration of one to two million of its own Muslim population in Xinjiang? This: that neither the Chinese people nor the rest of the world will be safe in their lives, political rights, and pursuit of free trade as long as the Chinese Communist Party (CCP) and its general secretary, Xi Jinping, rule China in the manner of Mao Zedong but with far great wealth and technical resources than that crackpot despot was able to wield.
The single best contribution to insuring many years of economic prosperity for China, the US, and the rest of the world would be for China
- To adopt the democracy that Hong Kong’s citizenry are fighting for,
- For the 205 members of the CCP Central Committee to retire to a quasi-aristocratic upper house limited to veto powers,
- For free elections to be held throughout China to select the members of a lower house that would function as the nation’s legislative body, and
- For the country’s chief executive post to become elective, term-limited, and by law not occupied by a Communist Party member.
Were this beneficial revolution to take place, the appropriate action on the US side would be to speedily negotiate the removal of all restrictions on genuinely private sector Chinese companies not selling pirated products. The tariff and quota restrictions President Trump has imposed on other countries, partly to block Chinese dumping and trans-shipments, should also be lifted in favor of multilateral trade agreements.
Alas, President Trump and most Americans, whether Republican or Democrat, don’t seem to understand the basics of economics and trade economics in particular. Trade doesn’t, on net, create or destroy jobs. Some jobs disappear, others are newly created, but on the whole the employment numbers don’t change. Only business cycles do that.
Trying to protect one industry, such as steel, hurts other industries, such as the steel-keg manufacturer, who in turn must now file for protection. That, if granted, will require beer manufacturers in turn to petition for protection, ad infinitum. (Wall Street Journal, Nov. 25, 2019, “How Tariffs Lead to More Tariffs”)
So why have trade if it doesn’t change the net employment figures? Because the importance of trade is that it — and innovation — are the two key drivers of productivity. These in turn are what make rising standards of living possible. Trade allows workers and businesses to focus on activities where they can add the most value.
The decline of manufacturing labor as a percentage of the US work force is no more a problem than the decline of agricultural labor was in the first decades of the 20th century. In both cases, productivity improved so much that many of the workers in those two sectors were no longer needed but were able to improve their prospects by moving to another sector. It is true that this can be a wrenching experience for some, but the fact that the US for much of its history, unlike Argentina, didn’t impede this transformation is what made it a wealthy and prosperous nation.
But complaints that the shift from manufacturing to service sector employment hasn’t always been a step up for many may seem like an argument in favor of halting or slowing down that shift. The problem, however, lies elsewhere: in sub-standard public schooling that does not prepare workers for the intellectually more demanding jobs the new economy requires; and counter-productive tax and regulatory policies that discourage research, investment, and new business formation so that the higher-value jobs are actually there for displaced and other workers.
Japan. This brings us back to the nitty-gritty of the last week’s trade developments. House Democrats and civilian experts complained at a November 20th hearing of the House Ways & Means Trade Subcommittee that the two recently concluded US-Japan mini-trade deals left the US falling behind Japan’s other main trading partners with whom it already has deals in place; also, that the tariff agreement the administration recently negotiated doesn’t cover as many farm products as the Trans-Pacific Partnership did. Trump exited the TPP in his first week of office, whereas Japan revived it and is now enjoying its benefits along with ten other Pacific nations.
Automotive tariffs. The President’s failure to announce his decision on automotive tariffs at the November 14th deadline was welcomed by virtually everyone, including car manufacturers, but uncertainty still hangs over the industry as to whether the president may make some unexpected decision in the future. Capital investment in the US and elsewhere has been severely restricted because of this uncertainty. The Wall Street Journal reports that “Many of the biggest U.S. companies are moderating their spending on equipment and other capital investment…The pullback began as trade tensions escalated last fall, leaving companies unsure about their supply chains, pricing and profits.”
Section 301 tariffs. President Trump’s reluctance to endorse the House and Senate Hong Kong Human Rights & Democracy Act creates further uncertainty as to how Beijing will react as December 15th approaches. On that date Section 301 tariffs of 25% go into effect on List 4B imports from China. These are imports weighted heavily toward consumer goods and products for which there are no domestic suppliers. It would be economically and politically damaging to the president for these tariffs to take effect.
The Xi Jinping regime is trying to get a trade agreement with a bare minimum of concessions. On November 24th, the Chinese government suggested it would strengthen intellectual property (IP) protections. The planned measures, which will require adherence by local governments, include raising penalties for IP violations, making it easier to punish violators, and facilitating compensation claims of victims of IP theft. But hiking penalties and facilitating accusations of IP theft have been promised before by Beijing.
USMCA. Bipartisan agreement in Congress on supporting the democracy movement in Hong Kong doesn’t seem to have transferred to approval of the US-Mexico-Canada (USMCA) agreement, with Democrats balking. Republicans, including the President, have stepped up criticism of House Speaker Nancy Pelosi and accuse Democrats of being unable to legislate because they are so engrossed in impeachment.
But the president should join with Republicans and Democrats to make the most of their agreement to curb the totalitarian threat of China. We believe this will strengthen US abilities to nail down a good trade agreement with China. We believe that Xi Jinping is facing opposition to his purges and Mao-style dictatorship even within the Central Committee. That is the most plausible explanation for the leaking to the West of 400 pages of top-secret documents concerning the Xi Jinping-ordered suppression of Muslims in Xinjiang.
When Chinese leaders and their state-controlled press complain of US interference with Chinese internal affairs, the US should reply that it’s only too clear that Beijing wants to make the whole world its internal affair, starting with Taiwan; suppressing global freedoms as it tries to do in Hong Kong what it has been doing for decades in Tibet and more recently in Xinjiang; violating other countries’ territorial rights in the South China Sea and trying to declare it China’s personal lake; spying and stealing trade secrets everywhere; hiring armies of hackers to break into Western computers; and bribing, recruiting, and intimidating citizens, academics, and politicians in the West. When China ceases these practices, it will have some standing to complain about interference in its internal affairs.
Meanwhile, the US will be glad to accord China the trade pact it deserves according to the freedom it does or not accord to its own entrepreneurs, its cessation of dumping and theft of intellectual property, and other uncivil practices. There’s no reason President Trump can’t lay these cards on the table with his “friend” Xi Jinping. Isn’t it part of the art of the deal?
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