The weekly trade report — by Trade Correspondent L.C.
One of the few growth industries in China now are the private start-ups selling accurate reports on the Chinese economy to business customers. The government reports have been found useless for business planning. Today’s Wall Street Journal gives front page coverage to how the Chinese Communist dictatorship suppresses reports showing slowdowns in the economy, such as the manufacturing index for Guangdong (Canton) province, a major trade hub. To counter the economic setbacks it is refusing to publicly acknowledge, the Chinese government has just launched a stimulus program “to keep the economy from cratering.” China’s President Xi is directing his officials to maintain a “fighting spirit” with “courage to fight and mettle to win.”
But the Chinese government’s refusal to honor its international treaty obligation to preserve Hong Kong’s autonomy and democratic rights until 2047 suggests it would similarly dishonor any trade treaty with the US. If President Xi wishes to re-establish some degree of trust again, he needs to restore the rights of Hong Kong’s citizens to elect their own chosen leaders. That is what the demonstrations in Hong Kong are presently about.
Meanwhile, the US and China have finally set out the time frame, if not the precise date, for the next session of face-to-face high-level trade talks: Washington DC in early October. Before then, there will be working-level and deputy-level talks. Expectations are being kept low.
One possible further trade escalation being considered by the Trump administration is to de-list major Chinese companies from US stock exchanges by ending the waivers that have allowed them to list without the audits and financial disclosures that are required for US companies.
A Democratic congressman speaks up
The tariff war, however, is a principal cause of the recent slowdown in the US manufacturing sector and could spark an economic downturn next year. Preventing such a development is believed to be the US president’s number one priority in advance of the elections. President Trump admitted last week that the economy would be doing much better if he hadn’t launched a trade war with China but that he felt he had to do so because previous presidents had been too soft.
This is a reversal from his earlier promise that the trade war would bring quick benefits and be easy to win.
Surprisingly, few Democrats seem to have realized the political opening that the trade impasse has given them as the 2020 election approaches. One exception is Ron Kind (D-WI), who held a September 4th conference call with reporters in which he criticized Trump’s escalating tariffs as “disturbing” and lacking “vision or long-term strategy or plan.” He instead called for a two-part response. First, the US should build an international coalition of “like-minded countries” facing similar problems in China and work through the WTO to curb China’s abuses. Second, the US should aim to produce better trade goods than China. “Let’s beat them. Let’s out-create them.”
Congressman Kind also weighed in on Congress’s responsibility to curb the President’s unilateral trade powers. “I think it’s time now for Congress to start clawing back a lot of that authority, especially given how irresponsibly President Trump has used this authority.” He noted there is bipartisan support in Congress for doing so. Kind said he is working with Senators Rob Portman (R-OH) and Pat Toomey (R-PA) to draft legislation. “I’ve never seen a president work harder to plunge our nation into another recession, especially heading into his own re-election chances next year.”
The defense exception
But severe US sanctions against Chinese military and intelligence-linked companies like Huawei and ZTE do have strong bipartisan and allied support. It’s the tariffs on consumer and intermediate products unrelated to national security that are not widely supported by US business and consumers.
Congress is, however, advancing “Buy US” programs for government procurement. The House and Senate versions of the FY20 National Defense Authorization Act both have provisions barring municipalities from using federal transit funds to purchase products manufactured by foreign state-owned enterprises. The Senate version bars purchase of buses and rail cars, the House version only rail cars. The real targets are the Chinese Railway Rolling Stock Corp. (CRRC) and Build Your Dreams bus maker (which has US manufacturing plants). These state-owned and subsidized Chinese companies have made significant inroads into the US market, selling rail cars and buses very cheaply. The fear is that their strategy is to undercut domestic manufacturers, run them out of business, and then take over the market completely (as CRRC did in Australia).
US-Japan limited trade pact: not a done deal
President Trump may have jumped the gun when he announced that he and Prime Minister Shinzo Abe would ratify a limited trade deal when they meet in two weeks at the UN. Japanese purchases of US corn were to have been an important aspect of that agreement, Trump claimed, but it turns out that the kind of corn Japan imports from the US is different from the Japanese cultivar afflicted by fall armyworm (Spodoptera frugiperda). Also, US corn is more expensive than corn Japan can purchase from other suppliers led by Brazil.
President Trump is still threatening that he might impose Section 232 (“national security”) automotive tariffs on Japan some time in the future, even if a limited trade deal is reached.
South Korea may “graduate” itself, pleasing Washington
The South Korean government announced on September 4th that it is seriously considering relinquishing its status as a “developing country” at the World Trade Organization (WTO). The move would please the US, which has long argued that it is unfair to allow no-longer-poor countries to self-designate as developing, allowing them to receive special treatment under some WTO agreements. Although the main target of the US complaint is China, Washington has also called on other advanced developing countries to give up the designation. Brazil, Singapore, Taiwan, and the UAE have already announced they won’t claim developing-country status in the future. India and Mexico are also under US pressure to change their status.
The South Korean move comes at a time when Seoul is concerned about its ties with Washington in light of its unsettled conflict with Japan. But the move also indicates how much the US can achieve when it works through the WTO rather than trying to undercut it.
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