Sina Delenda Est

President Trump and Europe are teaming up against China on trade
By Rick Newman

President Trump called it “a very big day for free and fair trade.” 

That’s Trumpian hyperbole, but the president’s new efforts to smooth out trade disputes with Europe include one major new development.
After meeting with European Commission president Jean-Claude Juncker, President Trump hosted a short press conference to highlight what transpired: There’s a new goal to eliminate tariffs on many goods traded between the two regions and to “resolve” President Trump’s new tariffs on steel and aluminum imports. 

Europe pledged to buy more American energy and agricultural products. 

And the two giant economies will try to improve cooperation on technical standards, which could ultimately boost trade.
The last point President Trump mentioned may be the most significant, however. 

Trump said the United States and Europe will work together to “address unfair trading practices,” including “forced technology transfer,” “theft of intellectual property” and “overcapacity.” 

Neither man mentioned China, but that’s exactly who they were talking about.

President Donald Trump and European Commission president Jean-Claude Juncker speak in the Rose Garden of the White House, Wednesday, July 25, 2018, in Washington. 

All advanced nations have the same complaints about China: It forces foreign firms to turn over key technology as a condition of doing business in the country. 

It copies or steals trade secrets belonging to foreign firms. 

And it subsidizes giant companies that produce steel, aluminum and other commodities, allowing them to undercut foreign rivals on price, gobble up market share and drive foreign competition out of business.
President Trump has tried to address those problems, mostly be slapping tariffs on Chinese imports and insisting that China reduce its trade surplus with the United States. 

Trade experts say that won’t work. 

But joining with allies and pressuring China together could work, they say. 

And the place to start is at the World Trade Organization, the mysterious, globalist, technocratic trade arbiter President Trump has repeatedly bashed, to the delight of his supporters.

Reforming the WTO
President Trump has moved toward the mainstream, at least for a while. 

President Trump said Europe and the United States will work with “like-minded partners” within the WTO to address China’s trade abuses. 

That’s a good idea. 

The United States and dozens of other nations formed the WTO in 1995, when China was still a fledgling, developing economy that qualified for more protections than advanced economies. 

China entered the WTO in 2001, opening the door to becoming the export colossus it is now.
China is now the world’s second-largest economy, and there’s no other nation that intervenes in the economy on the scale China does. 

The trade honchos who formed the WTO in the 1990s never quite foresaw that, and the WTO lacks many of the tools to deal with China’s unique economic model.
Reforming the WTO to bring China to heel would be the kind of drawn-out, detail-oriented forward crawl that President Trump seems to despise. 

So his interest could wane and he might not follow through. 

But of all the moves China should fear, a revamped WTO that sharply limits China’s ability to pump government money into giant, home-grown firms is probably more threatening than President Trump’s tariffs.
Other trade announcements President Trump made were less impressive. 

President Trump said the two regions would work toward zero tariffs on “non-auto industrial goods.” Fine, but autos are the biggest sticking point between President Trump and Europe, not fruit or leather or bourbon. 

And there was no mention of any action on autos. 

That means President Trump’s threat to put a 20% tariff on all imported autos remains, which would roil the industry if it were to happen.
Both sides also emphasized that they were beginning “talks” to lower trade barriers between the United States and Europe, without any actual commitments. 

And President Trump and Juncker both indicated either party could terminate the agreement, which means it’s more of an agreement to try to agree than anything tangible. 

Still, President Trump’s bluster was subdued and he didn’t insult anyone. 

Maybe it was a big day after all.

Robert Lighthizer vs. China’s unfair trade practices

“To attack a problem as large as our trade deficit with China, U.S. officials must be prepared to consider very aggressive positions at the W.T.O.” -- Robert Lighthizer 

By KEITH BRADSHER

A container port in Qingdao, China, in December. China consistently sells $4 worth of goods to the United States for each $1 of imports. 

SHANGHAI — As a top trade official, he limited the Japanese cars and steel coming into the United States. 

He halted talks with China on a deal that would encourage investment between the two countries. 

And he tried to give American exporters an edge with special tax breaks.
When it comes to problems troubling working-class Americans and manufacturers, Robert Lighthizer, President Donald J. Trump’s nominee for trade representative, has historically blamed the United States’ trading partners, advocating aggressive retaliation for widespread abuses of free-trade rules.
It is a philosophy that he developed in the 1980s as a deputy United States trade representative and fine-tuned in the decades-long career that followed as the main trade lawyer for the American steel industry. 

Now he appears ready to train that focus sharply on China.
“It seems clear that the U.S. manufacturing crisis is related to our trade with China,” Mr. Lighthizer said in testimony to a congressional commission in 2010.
Over the years, Mr. Lighthizer has consistently taken the position that foreign countries are subsidizing their exporters while quietly but systematically blocking imports to protect jobs in their own countries. 

His answer is to pursue a long list of trade measures limiting America’s imports — even if those actions may be barely permissible, if at all, under World Trade Organization rules.
“To attack a problem as large as our trade deficit with China, U.S. officials must be prepared, at a minimum, to consider very aggressive positions at the W.T.O.,” he said.
The choice of Mr. Lighthizer leaves China in a difficult spot. 

He is part of a group of Trump trade appointees with close links to exactly the kinds of metal-bashing old-economy industries in which China faces the greatest overcapacity, and the toughest choices about how to close factories and lay off workers. 

Restrictions on exports to the United States will make those choices even harder for China.
Wilbur Ross, the billionaire investor who is Mr. Trump’s choice to become commerce secretary, made large chunks of his fortune in steel and auto parts, two huge industries that in China are ramping up exports. 

Peter Navarro, the head of the new White House office overseeing trade and industrial policy, is a brilliant critic of globalization who said that American purchases of imported goods at Walmart are helping China pay for nuclear-tipped missiles aimed at the United States.
The timing is bad for China.
The Chinese economy is slowing despite vast amounts of fiscal and monetary stimulus. Big manufacturers in most industries are struggling with overcapacity, pushing them to sell goods overseas at cut-rate, even money-losing prices, just to cover their operating costs. 

Mr. Lighthizer has argued for years that the United States should keep out goods made with government subsidies or sold below the full cost of making them.

DOCUMENT

What Trump’s Nominee for Trade Representative Has Said About China and the W.T.O.

We annotated testimony that Robert Lighthizer gave to Congress in 2010 about China, the W.T.O. and trade with the United States.

“Trump naming him makes me worry the U.S. will carry out more rigid measures on trade and investment,” said Wei Jianguo, a former vice minister of commerce.
Exports are important for China. 

It consistently sells $4 worth of goods to the United States for each $1 of imports. 

That mismatch has produced a bilateral trade surplus for China equal to about 3 percent of the country’s entire economy, creating tens of millions of jobs.
The benefits to China from that surplus have been increasing rapidly in the past few years. 

Many exporters have stopped importing components and switched to increasingly capable local suppliers for everything from high-quality steel to advanced computer chips. 

Multinationals have moved entire supply chains to China, and transferred the technology to run them.
Many Democrats and many economists have also become increasingly disenchanted with the effect on American workers and the American economy. 

The Obama administration filed a long series of trade cases at the W.T.O. against China, although they involved fairly narrow policies and limited categories of goods. 

It has been preparing more, filing the latest trade case on Thursday over Chinese subsidies to aluminum producers.
If Mr. Trump goes even further in that direction, Mr. Lighthizer will bring a long background in such actions.
When he was in the Reagan administration, Mr. Lighthizer was the deputy United States trade representative overseeing industrial policy in old-economy industries like cars and steel. 

Since then, Mr. Lighthizer has mainly been filing anti-subsidy and anti-dumping trade cases against imports on behalf of the American steel industry.
“He’s the best negotiator I’ve ever worked with on policies involving trade or tax policy,” said Timothy Regan, Mr. Lighthizer’s chief of staff in the Reagan administration and now the senior vice president of global government affairs at Corning.
Mr. Lighthizer led successful efforts in the 1980s to force Japan to accept curbs on exports of cars and steel to the United States. 

Both were bold moves, particularly given that President Reagan at times espoused free trade. 

But when the W.T.O. was created the next decade, member nations agreed, with a few exceptions, to renounce imposing such export limits on other countries.
The auto industry could be ripe for action again. 

China is an enormous exporter of auto parts to the United States. 

Under Obama, trade tensions over automotive trade have already risen, and the Obama administration has won two W.T.O. cases. 

The cases forced China to abandon certain anti-dumping and anti-subsidy taxes on American autos and to dismantle a few, fairly narrow subsidies.

Barges in China with ore to be used in the manufacturing of steel. Robert Lighthizer, the Trump administration’s choice for trade representative, had a decades-long career as the main trade lawyer for the American steel industry. 

“He was squarely in the trade talks with Japan,” said He Weiwen, a former commerce ministry official who is now a senior fellow at the Center for China and Globalization, an influential Beijing research group, “so maybe Donald Trump wants him to do something similar on China.”
The intersection of tax and trade is a specialty of Mr. Lighthizer, who was an architect of a Reagan administration initiative to cut corporate taxes for exporters. 

He was previously chief of staff at the Senate Finance Committee, overseeing tax policy.
In the Reagan administration, he pushed the limits of what is permissible under international trade rules. 

His plan allowed many American exporters to reduce their taxes by setting up overseas companies to manage their foreign sales. 

But the W.T.O. eventually torpedoed the effort after a challenge by the European Union in the late 1990s.
Republicans now appear to be taking a similar — albeit more ambitious — tack. 

They are exploring how to raise corporate taxes for importers and use the extra revenue to reduce taxes for all other companies.
China, as the biggest exporter to the United States, would face a major blow. 

But it would also affect American retailers, electronics companies and other multinationals that depend on supplies from anywhere overseas.
A big obstacle for Republicans is whether the W.T.O. would declare such a tax to be a trade barrier. China and Europe effectively penalize imports by imposing a type of national sales tax, an approach the W.T.O. has approved. 

It is a steep 17 percent in China.
But House Republicans, leery of imposing any new national taxes, want to change existing corporate tax laws instead. 

W.T.O. rules discourage, although they do not necessarily prohibit, modifying corporate taxes in ways that penalize imports.
The W.T.O. review process, though, is lengthy. 

So Mr. Lighthizer and Congress could well go ahead with the tax plan, lightening the tax burden for American manufacturers as well as inflicting plenty of damage on China and the global supply chain.
And the W.T.O.’s response — if it found the plan invalid — would not have much heft. 

Mostly, the global trade group could authorize Beijing to impose trade restrictions on the United States’ much smaller exports to China.
That prospect does not scare Mr. Lighthizer very much, as he made clear in his 2010 testimony.
“W.T.O. commitments are not religious obligations,” Mr. Lighthizer said, and violations “are not subject to coercion by some W.T.O. police force.”

China Takes Flak From Foreign Finance Officials at IMF, World Bank Meetings

Surging credit growth, overcapacity in its steel industry and its bloated housing market draw widespread complaints.
By WILLIAM MAULDIN

People’s Bank of China Deputy Governor Yi Gang, left, and Bank of England Gov. Mark Carney attended a panel discussion at the International Monetary Fund and World Bank Group semi-annual Meetings in Washington on Thursday. 

WASHINGTON—Finance officials trying to avert the next global economic crisis found time at a summit here to worry about something besides Brexit and European banks: China’s mounting debts and its flagging economic overhauls.
The country’s surging credit growth, overcapacity in its steel and metals industries and its bloated housing market drew widespread complaints from finance officials and central bankers attending semiannual meetings of the International Monetary Fund and World Bank.
Officials congratulated China for its efforts to get the yuan included in the IMF’s international basket of currencies, known as special drawing rights, starting Oct. 1. 

And despite a couple of scares in the past year or so, the country’s markets and economic growth have appeared to stabilize in recent months.
But in a sign of how important the world’s second-biggest economy is to global growth, China is increasingly being called out.
U.S. Treasury Secretary Jacob Lew warned Beijing in unusually candid language about China’s overproduction and overbuilding, which he suggested could become the biggest U.S. complaint about the country, as their earlier disputes over the country’s exchange rate become less divisive.
“I’m talking about steel, I’m talking about aluminum, I’m talking about real estate—when you don’t have market forces driving investment, when you don’t have bad investments allowed to fail, you end up with resources allocated in a way that ultimately chokes the future of economic growth,” Mr. Lew said at the Peterson Institute for International Economics on Thursday.
The IMF zeroed in on a measure called current credit overhang, a widely followed international indicator of potential crises. 

The deviation of China’s credit growth from its long-term trend has surged from zero during the financial crisis to up to 27%. 

Last year, banks’ balance sheets grew to 286% of gross domestic product.
“More is needed, especially to curb excess credit growth, reduce the opacity of credit products, and ensure sound interbank funding structures,” said Peter Dattels, deputy director of the fund’s monetary and capital-markets department.
China’s policy makers are caught in a deepening trap, economists say. 

Dealing with the debt problem would require the country to start deleveraging. 

But slower credit growth is bound to hamper the overall economy. 

That could backfire by making it harder for companies to repay existing debt.
Clamping down on credit would also raise the prospect of political unrest in a country that has grown accustomed to very rapid growth. 

Faced with such unappetizing prospects, the country’s leaders have largely eschewed credit restraint in the hope that they will be able to deal with its economic problems over time.
Part of the problem is the complicated and poorly disclosed structure of the country’s swollen banking system, economists say.
“The increasing complexity, opaqueness of the shadow banking, both on the asset side, but even more on the funding side where a lot of the funding is short term, is not stable,” Markus Rodlauer, the IMF’s Asia-Pacific deputy director, told reporters on Thursday. 

“It’s still of a size that is manageable, but the trajectory is dangerous, and needs to be contained.”
China’s appetite for steel and aluminum, which shrank abruptly in the past year or so, is of vital interest to commodity-exporting economies such as Russia and Brazil. 

For now, exporters appear to be confident that demand won’t drop off again in the short term.
“China’s growth is stabilized at a lower level,” Brazilian Finance Minister Henrique Meirelles said in an interview. 

“I don’t see a further collapse coming.”
Still, much will depend on China’s economic transition.
“They are trying to alter their priority from manufacturing to services, from export-oriented to domestic consumption,” said Indian Finance Minister Arun Jaitley in an interview. 

“In the transformational stage, there will be ripples.”