Trump Should Sanction China for Destabilizing South Korea

As Secretary of Defense James Mattis tours Asia to pledge support to our allies, the best form of reassurance would be action against China’s provocative moves in the region.
By GORDON G. CHANG

Secretary of Defense James Mattis is now ending his “Mission Reassurance,” the first foreign trip by a Trump administration official. 

He spent two days in Seoul and is finishing up in Tokyo.
The SecDef has been issuing strong words confirming America’s commitment to defend South Korea and Japan. 

That’s important. 

Now, however, it’s time for President Donald Trump to back up the reassurances with stiff economic sanctions on China for destabilizing North Asia.
Mattis’s staff, sounding pitch-perfect, characterized his inaugural foreign tour as a “listening trip.”
Yet the former Marine Corps four-star general was also there to speak. 

“I want there to be no misunderstanding during the transition in Washington that we stand firmly, 100 percent shoulder-to-shoulder with you and the Japanese people,” he said on Friday to Japanese Prime Minister Shinzo Abe.
“We stand with our peace-loving Republic of Korea ally to maintain stability on the peninsula and in the region,” Mattis said earlier in the day in Seoul. 

“America’s commitments to defending our allies and to upholding our extended deterrence guarantees remain ironclad: Any attack on the United States, or our allies, will be defeated, and any use of nuclear weapons would be met with a response that would be effective and overwhelming.”
What is neither effective nor overwhelming is America’s response to provocative Chinese actions directed against Seoul. 

For more than a year, Beijing has been trying to prevent South Korea from basing on its soil the Terminal High Altitude Area Defense system, designed to shoot down incoming missiles. 

From a location in the South, THAAD, as the Lockheed Martin-built system is called, can protect South Korea, Japan, Guam, and the United States. 

Beijing objects to deployment as it is worried that THAAD’s powerful radars can peer over the border into China and hit its missiles as well as North Korea’s.
Beijing has pulled out the stops in its campaign against Seoul, threatening to cut diplomatic relations and issuing media tirades. 

Moreover, it has used the Chinese economy as a club. 

It has, for instance, barred South Korea’s K-pop groups from performing in China, ended charter flights to the South, limited Chinese tourists going there, and banned the import of South Korean cosmetics.
And Beijing has gone after Lotte Group. 

The South Korean chaebol, the country’s fifth largest, is thinking of swapping land, a golf course, with the country’s Ministry of Defense so that the government can get a suitable parcel for the first THAAD battery.
There is talk of a boycott of Lotte Chinese outlets and “continuous sanctions.” 

Last November, the Chinese government also ordered an audit of an affiliate of Lotte and a fire-safety inspection of a Lotte store.
So far, the pressure on the conglomerate is working. 

On Friday, the board of directors of Lotte International, the group unit that owns the land in question, again deferred a decision to approve the deal. 

Perhaps significantly, the company did not announce a future board meeting.
In response, Seoul has stopped approving visas for Beijing’s Confucius Institutes in South Korea. That’s a brave step, but the South does not have the heft to significantly affect Beijing’s calculus on the matter.
The United States, however, does. 

The American market is critical to China, and closing it—or threatening to do so—would make Beijing rethink its intimidation of Seoul.
China is itself vulnerable to U.S. pressure. 

In 2015, China ran a trade surplus in goods and services of $336.2 billion. 

The surplus looks like it was slightly smaller last year, but it was nonetheless substantial. 

China could not sustain a sudden cut off of trade with the U.S.
Of course, America would be hurt as well, but the damage would be far smaller. 

The U.S. is not dependent on trade with China and its economy is far larger than China’s, thereby better able to withstand shocks. 

Last year, China’s gross domestic product, as reported by the official National Bureau of Statistics, was $10.83 trillion. 

America’s, according to the first estimate of the Bureau of Economic Analysis, was $18.86 trillion. 

In reality, the disparity is almost certainly larger due to Beijing’s overreporting.
Trump, while campaigning for the presidency, talked about a 45 percent tariff on Chinese goods to counteract the effect of Beijing’s increasingly predatory trade practices. 

Many objected to the cost of such a levy, but no cost is too high to get the earliest warning of a North Korean—or, for that matter, Chinese—launch of a nuclear weapon.
It’s outrageous that China has armed North Korea’s Kim regime and is now threatening “a small country”—Beijing’s demeaning term for South Korea—for trying to protect itself, but it’s understandable why it’s trying to get away with that. 

It is not explicable, however, why Washington allows the Chinese to get away with such intimidation.
It’s good for Mattis to issue reassurances to jittery American allies, but it would be even better for his boss to show real American commitment by imposing costs on China.
The best form of reassurance, after all, is action. 

Investing legend Jim Rogers: 'Forget China, buy Russia'

By Joshua Bateman

Jim Rogers

Renowned investor Jim Rogers has a contrarian message for U.S. investors on the prowl for opportunities in the wake of the Trump presidency: Buy Russia.

In his view, with U.S. equity indices realizing all-time highs, now is the time to look at undervalued markets around the world.
Rogers decades ago co-founded the Quantum Fund with George Soros.
Although Rogers acknowledges that the Trump effect has had "an impressive effect on the U.S. stock market," he says "many stocks are now expensive." 

Tax cuts, infrastructure spending and corporate cash repatriation should remain positive for U.S. markets over the next couple of years, but Rogers sees better opportunities internationally.
According to the investment guru, his bullish stance on Russia is based on his view that relations between the United States and Russia will improve when Donald J. Trump takes office as the 45th president of the United States, providing a boost to its depressed economy. 

There is also the chance that sanctions imposed on Russia over its role in the conflict in the Ukraine may be eased.
Rogers first visited Russia in 1966 and was pessimistic for almost five decades. 

"But something has happened in the Kremlin. They understand that they cannot be the same old czarist and communist plutocrats that they were," he said. 

Russia also has vast natural resources — it's the world's largest petroleum producer — and is not a significant debtor nation despite the fact its been mired in recession due to the oil price collapse and international sanctions. 

It has the 12th-largest economy, valued at $1.3 trillion, the IMF reports.
Rogers is long the ruble and Russian markets. 

"I was bullish on Russia before Trump came along with his positive comments," he said, noting that he has been investing heavily there over the last few years. 

"Trump is going to be friendly with Russia. That's an enormous change. You're going to see the rest of the world remove sanctions."

China is a big risk
In contrast, Rogers is not optimistic about investment prospects in China and is in a holding pattern, neither shorting nor buying assets.
He says Trump's hawkish stance on China will stall the country's economic growth engine. 

The president has threatened to slap huge tariffs on Chinese imports, which could trigger a trade war. 

"Trump seems to have it in for China. I don't know why, since he and his family do huge amounts of business in China," Rogers said.
On Jan. 2, Mr. Trump tweeted that "China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade, but won't help with North Korea. Nice!"
Within days China's state news agency, Xinhua, retorted with a commentary, noting that such tweets are "undesirable."
"Guys that Trump has appointed do understand how the world works... They say that they need to attack China," Rogers said.
In December, Trump selected Peter Navarro, author of "Death by China: Confronting the Dragon," to head the National Trade Council, a new White House office. 

"Navarro has made a career out of attacking China. And Trump's going to obviously listen to him. And that can cause strife for a while," Rogers said.
In September 2016, Navarro co-authored a campaign white paper with Wilbur Ross, nominee for U.S. Commerce Secretary. 

They wrote that China's 2001 WTO inclusion "opened America's markets to a flood of illegally subsidized Chinese imports, thereby creating massive and chronic trade deficits. China's accession to the WTO also rapidly accelerated the offshoring of America's factories... China is hardly the only cheater in the world; it's just the biggest."
In an attempt to improve U.S. business competitiveness on the global stage, Trump has spoken of a 45 percent tariff on Chinese imports.
"If he does that, you better sell everything you have, because it will cause very, very serious problems," Rogers said.
"When you have trade wars, you have economic upheaval, turmoil, recessions [and] bankruptcy."
Through the first 10 months of 2016, the United States exported $92 billion worth of goods to China and imported $381 billion worth.
Because of this risk, Rogers said, "the U.S. dollar is going to continue going up against nearly every currency in the world."

A potential whiplash
A trade war would have ripple effects.
According to Rogers, China could reduce its $1.12 trillion of U.S. debt holdings by allowing the bonds to roll off as they mature.
Additionally, it could institute its own tariffs on U.S. imports, hurting industries such as agriculture.
In fiscal year 2016, the United States had an agricultural trade surplus with Greater China, exporting $26 billion worth of goods while importing only $4 billion.
Importing less from the United States would bolster the agricultural industries in both China and Russia.
Owing to these potential policy changes, Rogers is cautious.
"If Mr. Trump does what he says, Chinese equities certainly are not going to go up. No equities are going to go up if he does what he says he's going to do. So I'm sitting and watching," he said.
He is bullish on select sectors in China, however, including those that improve the environment and peoples' lives.
"The Chinese are now spending huge amounts of money cleaning up [the environment]. … Healthcare in China's a disaster. They're spending a lot of money to get better and more health care." As the country continues to develop, "parts of the Chinese economy are going to do extremely well no matter what happens to the world," he said.
The One Belt, One Road initiative valued at over $4 trillion is also creating investing opportunities. "It's rare in history that geography changes," Rogers said.
"The Chinese have this gigantic project, which is going to change world geography as we know it. Somebody's going to make a fortune."
Rogers said railroad suppliers will prosper, and correspondingly, he recently opened a trading account in Kazakhstan, which he said will benefit.
Rogers, who has lived in Singapore for nine years, said, "I don't think many people, if any in Washington, understand what's happening [in Asia]... They don't understand that Japan is in decline. They don't understand that North and South Korea will be merging soon..."
And as the United States' role in the region is reduced, as Trump has asserted, China's influence will rise.
Although Rogers is bearish on many asset classes over the short term, he is bullish on Asia over the next 10 or 20 years.
"If you look at the largest creditor nations in the world, they're all in Asia: Hong Kong, Taiwan, Korea, Japan, Singapore, even Russia. This is where the assets are. This is where the demographics are positive. This is where the energy is," he said.

U.S. Should Get Tougher on China’s Deal Making

By EDWARD WONG

The Yangshan Deep Water Port in Shanghai in September. The panel’s report this year took a critical look at the free-trade relationship between the United States and China — for example, implying that the two countries are not competing on a level playing field. 

Congress should exercise greater scrutiny over trade and investment practices between the United States and China in order to prevent China from taking advantage of the economic relationship, a congressional commission said in a report released on Wednesday.
In its long list of recommendations, the commission advised Congress to authorize a government panel that reviews foreign takeover deals to bar Chinese state-owned companies from acquiring or gaining “effective control” of American companies. 

It also said Congress should ask a government watchdog agency to write a report on whether large-scale outsourcing of manufacturing to China “is leading to the hollowing out of the defense industrial base.”
The commission also suggested ways in which Congress could better bring antidumping cases against China.
Each year, the U.S.-China Economic and Security Review Commission releases a report to Congress with recommendations based on months of research. 

The commission aims to make suggestions after examining trade, investment and national security issues between the two nations. 

Its recommendations are not binding.
The report this year took a critical look at the free-trade relationship between the United States and China — for example, implying that the countries are not competing on a level playing field. 

It follows a populist airing of grievances over the downsides of free trade and a globalized economy in Western nations this year. 

That helped lead to the election last week of Donald J. Trump as the next United States president and to the vote by Britons in June to leave the European Union.
China, in its recent public statements, has emphasized the tight economic ties between the two major trading partners and said the countries would benefit more from working together.
During his campaign, Mr. Trump said he would bring manufacturing jobs back to Middle America and consider imposing a 45 percent tariff on Chinese exports, as well as labeling China a currency manipulator. 

In September, after prodding from some lawmakers, the Government Accountability Office, a watchdog agency, said that it would examine whether reviews of foreign purchases should include more types of foreign investments and be broadened to define more industries as important to the nation’s economy.
The report released on Wednesday said Congress should create an office in the International Trade Administration to identify and bring antidumping and countervailing duty cases. 

Countervailing duties are imposed on goods to offset the fact that the goods may have been made with the help of subsidies.
Besides trade and investment, the report covers topics like security relations, China’s global footprint and the United States’ rebalancing to Asia.
In one section, the authors criticize meager American government efforts to block intelligence collection by China. 

The Obama administration has expressed concern over what it sees as state-sponsored hacking from China in recent years.
“The U.S. government response to the threat from Chinese intelligence collection has suffered from the lack of an integrated, coordinated effort within the U.S. intelligence community,” the report said.
“The U.S. government’s efforts to counter Chinese intelligence collection operations have manifested largely as a series of espionage prosecutions rather than a strategic, whole-of-government response,” it added. 

“The Obama administration has taken steps to improve cybersecurity among U.S. government agencies and defense contractors, but these measures could mitigate, not eliminate, the significant cyber espionage threats to these organizations.”