China’s Online Censorship Stifles Trade, Too

When the Chinese government blocks foreign internet companies for political reasons, the United States should treat the tactic as the anticompetitive economic strategy that it is.
By Tim Wu

As China and the United States engage in high-level negotiations over a possible trade deal, it’s puzzling to see what’s been left off the table: the Chinese internet market. 

China blocks or hinders nearly every important foreign competitor online, including Google, Facebook, Wikipedia in Chinese, Pinterest, Line (the major Japanese messaging company), Reddit and The New York Times. 

Even Peppa Pig, a British cartoon character and internet video sensation, has been censored on and off; an editorial in the Communist Party’s official People’s Daily newspaper once warned that she could “destroy children’s youth.”
China has long defended its censorship as a political matter, a legitimate attempt to protect citizens from what the government regards as “harmful information,” including material that “spreads unhealthy lifestyles and pop culture.” 

But you don’t need to be a trade theorist to realize that the censorship is also an extremely effective barrier to international trade. 

The global internet economy is worth at least $8 trillion and growing, yet the Trump administration has focused chiefly on manufacturing, technology transfers and agriculture, and does not seem to have pressed for concessions on this issue.
Sheltered from American, Japanese and European competition, Chinese internet businesses have grown enormously over the past decade. 

Nine of the world’s 20 largest internet firms, by market value, are now Chinese. 

Some of this growth reflects the skill and innovation of Chinese engineers, a vibrant start-up culture and the success of Chinese business in catering to local tastes. 

But it’s hard to believe that this has been unaided by censorship.
And the barriers to foreign competition have more than just economic effects. 

Without any better options, Chinese users are forced to put up with companies like Tencent, which owns the private messaging app WeChat, and the online payment company Ant Financial, whose privacy violations are, amazingly, even more troubling than those of Facebook and Cambridge Analytica. 

By tolerating Chinese censorship, the United States encourages other countries to do the same.
When it joined the World Trade Organization in 2001, China agreed to a broad liberalization of trade in services, including data processing and telecommunications. 

China’s internet policies must be understood as a violation of these commitments. 

China will presumably counter that its internet policies are “necessary to protect public morals or to maintain public order,” invoking the relevant exception to the World Trade Organization’s rules. 

But while that exception might justify bans on gambling sites or even Peppa Pig, in the case of most of China’s internet barriers the real purpose seems to be the protection of homegrown business interests.
Why is the United States not demanding change? 

It’s not as if we lack leverage. 

Chinese firms like Tencent and the online retailer JD.com have aggressively pursued operations in the United States, seeking to take advantage of our open internet and open market. 

The Office of the United States Trade Representative even cited Chinese internet blocking as a trade barrier in 2016. 

Why allow a country to do business here if it won’t let us do business there? 

The basic principle of trade policy is reciprocity: Lower your barriers and we’ll lower ours. 

When it comes to the internet economy, the United States has unilaterally disarmed and is being played for a fool.
Particularly baffling is the attitude of the major American internet firms, the victims of China’s internet trade policy, whose strategy has largely been one of appeasement. 

Google did retreat from the Chinese market in 2010 because of concerns about censorship and industrial espionage, and it did complain for a while about Chinese obstructions. 

Yet last year we learned that Google was effectively giving up the fight, building a censored search engine for the Chinese market and begging for access.
Also disappointing has been Facebook’s approach. 

Even though Facebook has been banned in China for years, Mark Zuckerberg, its chief executive, has made embarrassing efforts to ingratiate himself with Chinese dictator Xi Jinping. (At one point gossip pages even reported that Zuckerberg asked, in vain, for Xi to give an honorary Chinese name to his unborn child.)
Appeasement does not make effective foreign policy or trade policy. 

The United States, with the world’s largest economy and its most important internet sector, should be negotiating from a position of strength. 

If the Trump administration wants to be tough with China on trade, it should demand meaningful access to the Chinese internet market, on pain of denial of access to American markets for Chinese firms.
That is how trade negotiation has always proceeded, and the internet ought to be no exception. 

We otherwise run the risk of winning the battle for the past while surrendering the battle for the future.

Germany’s China Problem

Berlin is walking a thin line between its strongest ally and its biggest trading partner.
By Anna Sauerbrey

Xi Jinping and President Frank-Walter Steinmeier of Germany with a military honor guard in Beijing last month. German leaders have recently become more worried about the risks of having China as a business partner.

BERLIN — As the trade impasse between the United States and China grinds on, the rest of the world is reduced to being anxious bystanders — and nowhere are leaders more anxious than here in Germany.
Over the last decade, Germany, the largest economy in Europe but still a middle power by global standards, has steadily adapted itself to the realities of Chinese economic dominance.

We have welcomed Chinese investment, and encouraged our companies to play by Beijing’s rules to get access to its markets. 

At the same time, Germany has remained a stalwart member of the Western political and security alliance.
The geopolitical tumult of the last six months has led to a strategic awakening among Germany’s leaders of the risks involved in trying to play both sides. 

Whether Germany has the capacity to rise to those challenges may be the biggest question facing the country over the next several years.
Until now, trade has defined Germany’s foreign policy on China, its single most important trading partner. 

It has sought close relations with China, setting up regular bilateral government consultations.
Like many in the West, Germans believed that growth would push China in a more economically and politically liberal direction. 

But over the last few years, these hopes have been shattered by the increasingly nationalist, expansionist and statist politics of Xi Jinping.
According to analysts like Mikko Huotari, the deputy director of the Berlin-based Mercator Institute for China Studies, Chancellor Angela Merkel has long held a skeptical view of China’s political development. 

But it was not until about two years ago that the rest of the government came around to her way of thinking, and pushed the rest of the government to sign onto a new, multifaceted China strategy.
This new approach begins with the premise that China is not just expanding its economy, but seeking to impose a global agenda that not only promotes its interests but also chips away at the rules-based, multinational order established after World War II. 

In response, Germany needs to be more active, perhaps even combative, in defending its interests.
But it was not until the last several months that the government began to change its public stance, becoming bolder in its talk of a “new great power struggle.” 

In a speech in November, Foreign Minister Heiko Maas argued that Europe had “the most of all to lose” from growing America-China tensions and America-Russia tensions.
In a recent, unusually outspoken paper, the Federation of German Industries, one of the country’s most powerful business associations, declared that there was “system competition” between China and Germany — in other words, that trade between the two countries had become a zero-sum battle. 

While German industry should continue to “take advantage of the opportunities offered by economic exchange with China,” the federation said, the “challenges posed by China cannot be ignored.”
And in December, Germany’s political leaders agreed to lower the threshold at which foreign investment in security-related industries — including energy suppliers, railways and digital infrastructure — prompts government intervention, a step clearly aimed at China. 

This policy was already in place in practice; last year, the German state bank KfW bought a 20 percent share of 50Hertz, a power distributing company, to block a bid by the State Grid Corporation of China. 

The Ministries of Finance and Economy cited security as the reason for the unusual move.
But is all this enough? 

Policymakers and diplomats refrain from speaking of a paradigm shift in Germany’s China politics. “We have carefully adjusted our policy,” said Niels Annen, the minister of state at the Foreign Office. Indeed, unlike Germany’s foreign policy on Russia, the country’s relations with China are under less vigorous and ideological public scrutiny. 

Russia is a passionately divisive topic; most Germans could care less about China. 

And diplomats probably like it that way.
When it comes to China, Germany has to walk a very thin line in a rapidly changing international environment. 

The trans-Atlantic relationship has been rattled since Donald Trump took office; Germany suddenly finds itself agreeing with China more on certain issues, like climate change, than with the United States, its longtime ally.
As a consequence, German diplomats have to play a tricky game: Partnering with an ideological adversary against its close ally on some issues, while sticking with that suddenly difficult ally against its most important trading partner on others. 

And in both cases, it has to stand by its commitment to the rules-based international order when neither of those partners holds the same level of commitment, at least at the moment.
How much longer Germany can continue to walk this line while staying committed to the old trans-Atlantic relationship remains to be seen. 

Mr. Huotari of the Mercator Institute expects Germany to be put on the spot sooner or later. 

“China may be content as long as Germany doesn’t take sides with the United States,” he said. 

“But the United States is expecting us to clearly position ourselves. We are in the middle of the game already — and the pressure is going to increase.”
Germany’s best option seems to be finding safety in numbers by uniting its European allies, not least because part of China’s geopolitical strategy is to divide Europe. 

Six years ago, it established the 16+1 framework, an initiative to engage 16 Central and Eastern European countries, 11 of which are members of the European Union, in closer relations to influence European policies in its favor.
Lately, however, several of those countries have become disenchanted. 

In some, China is having trouble keeping up with its investment promises. 

Others, like Poland, face increasing pressure from Washington to loosen ties with Beijing. 

This could be Germany’s opening, but it has to play it exactly right — and uniting Western, Central and Eastern Europe is no easy task. 

It is the eternal quandary of German foreign policy: Germany can’t go it alone, but Europe is too divided and too slow to step up. 

Nation of Cheaters

Yes, China Does Cheat In Trade - The Rest Of The World Needs To Wake Up
By Carson Block

A US Steel plant in Clarion, Pennsylvania. 

Based on China’s conduct in the aluminum industry, foreign capital markets, and what I’ve come to understand from many years of living and doing business there, I have no doubt China is breaking the rules across numerous industries. 

The focus on new tariffs the U.S. is levying on steel and aluminum, and our trading relationship with China misses this bigger point. 

The entire multilateral trading system – not just the U.S. – is the victim of China’s cheating. 

Government ownership of China’s banking system, and the enormity of its state-owned enterprise sector give China the tools to illegally subsidize industries in ways that are hard to detect. 

To be clear, China’s activities are not the same as a country exploiting the economic principles of comparative advantage. 

China has also allowed the engineers of literally hundreds of stock frauds to get away scot-free with tens of billions of dollars fraudulently taken from western investors. 

It is disheartening that only the U.S. thus far seems fed up with China’s cheating.
The aluminum industry is a clear example of China’s cheating. 

We have observed the cheating first hand through research my firm and I have previously conducted on the sector. 

Research we conducted in 2015, under the name Dupré Analytics, showed that state-owned banks in China made billions of dollars in loans to shell companies to purchase aluminum from China-based aluminum giant, China Zhongwang. 

It is highly unlikely that these loans, which were made to entities that were not even remotely creditworthy, occurred without approval from the highest levels of the Chinese government. 

Late last year, the U.S. Department of Justice filed a complaint against a California company called Perfectus Aluminum, alleging that Perfectus was an affiliate of Zhongwang and leveling a different accusation—that Perfectus had evaded $1.5 billion in U.S. import duties. 

Last year, a different Chinese alumnimum giant, China Hongqiao Group, was also alleged to be cheating. 

Hongqiao, which is listed on the Hong Kong stock exchange, claims to be the world’s largest aluminum producer. 

Research firm Emerson Analytics released a report alleging Hongqiao was vastly overstating its profits and committing widespread fraud. 

One of the points Emerson Analytics raised was the company’s reported expenses on electricity, which they claimed were too low to be true. 

Hongqiao’s major outside electricity supplier is owned by a local government.
In response to the report, the stock was halted. 

Soon thereafter, its auditor took the extraordinary step of resigning and calling for an internal investigation into the fraud allegations. 

China Hongqiao ignored these calls. 

Despite the controversy, it then received fresh financing from state-owned CITIC bank. 

The stock subsequently resumed trading, and within a week was trading about 80% above its last close prior to the halt. 

Because it’s hard to believe that the report, halt, and auditor actions made the case that Hongqiao is more valuable, I believe the price spike was caused by manipulation. 

If I’m correct, this manipulation was effectively a subsidy in real-time. 

As a corollary, in true communist memory hole fashion, Hongqiao sued Emerson in Hong Kong, and received an injunction that has made it significantly harder to find the report online.
Another industry in which I have first-hand knowledge of China’s cheating is the capital markets. 

The upcoming documentary The China Hustle chronicles the wave of reverse merger frauds from the last decade in which literally hundreds of fraudulent companies from China listed in the U.S., collectively raising tens of billions of dollars from investors. 

The funds were sent to China, separated forever from those wronged by the fraud. 

Virtually nobody from China has been imprisoned for these crimes, highlighting the discrepancy between China and the West when it comes to upholding the rule of law. 

In contrast, Kun Huang, a researcher from a short-selling firm that exposed numerous U.S.-listed frauds, was imprisoned in China for two years in inhumane conditions.
More to the point, I also believe that China has a concerted strategy to degrade the economies of, and transfer wealth from western countries. 

 My view seems to be supported by the recent statements of FBI Director Christopher Wray who warned that China is a “whole of society threat.”
The Trump administration fortunately seems to understand the dangers to a greater extent than its predecessors did. 

Unfortunately, our major trading partners do not seem to be aware of the enormity and dangers of the problem. 

In my view, the multilateral trading system is not to blame – it is the right approach to raising standards of living in the U.S. and abroad, and building international security. 

The problem is that one major player thinks playing by the rules is for suckers. 

I would strongly urge that rather than unilaterally impose tariffs that make the U.S. look like the rule breakers, we should work with the rest of the G7 to compel compliance by China through coordinated forceful trade action. 

At the end of the day, China has much to lose from being isolated from the international regime, and would almost certainly respond to coordinated insistence on compliance.

Axis of Evil

On North Korea, China is taking away with one hand and giving with another

By Zheping Huang

You've got a friend: If the lips are gone, the teeth will be cold.

North Korea conducts roughly 90% of its trade with China. 

So when the Chinese customs agency released its August trade data earlier this week, people looked closely for signs of how much pressure Beijing is really applying on Pyongyang, following the United Nations’ harshest ever economic sanctions on the rogue regime.
The official data show that China’s trade with North Korea jumped in August to its highest level since December. 

A closer look at the breakdown of the August trade (which was released later on Sept. 26) shows a mixed picture of the bilateral relationship. 

The main takeaway: while China certainly appears to be limiting trade of some products with its troublesome neighbor, it’s also trying to keep the regime afloat.

Coal

In February, China banned imports of North Korean coal until the end of this year, in response to the UN’s earlier move in December to restrict North Korea’s coal trade. 

But coal shipments resumed in August when China purchased 1.6 million metric tons (1.8 million tons) of coal from North Korea, according to the data.
Last month, the UN Security Council unanimously passed new sanctions against North Korea that include a complete ban on coal exports. 

China’s latest purchase of North Korean coal came just before the sanctions went into effect on Sept. 5. 

Zhao Tong, a nuclear-policy specialist at the Carnegie-Tsinghua Center in Beijing, read the move as China taking advantage of the window of opportunity to go a bit softer on North Korea. 

“China has decided to back away from an aggressive enforcement of sanctions, and apply a degree of pressure closer to the minimum requirements stipulated by UN resolutions,” Zhao told the Wall Street Journal (paywall).
A spokesman for the Chinese commerce ministry said today (Sept. 28) that China has "strictly" implemented UN sanctions on North Korea, which allowed for a buffer period for the coal ban.

Energy
Meanwhile, China’s gasoline exports to North Korea in August dropped 96% from a year ago to 180 metric tons (198 tons), according to customs data. 

Last week, China’s commerce ministry announced (link in Chinese) that the country would ban exports of condensate and liquefied natural gas to North Korea from Sept. 23, and cap exports of refined oil products from October. 

The moves are in line with the latest UN sanctions, which were approved earlier this month and aim to cut overall oil supply to North Korea by an estimated 30%.

Food
Things are very different when it comes to food. 

China’s corn shipments to North Korea surged 4,600% in August from a year earlier—with almost all of its corn exports going to North Korea—and wheat exports jumped more than 50 times in the same period, according to the data. 

The huge increase in food exports comes as North Korea suffers its worst drought in more than a decade, with tens of thousands of people facing severe food shortages, according to the UN. 

South Korea stopped sending aid to North Korea in response to the regime’s weapons program (though the current progressive government in Seoul recently announced it would provide $8 million in humanitarian aid to Pyongyang). 

China is quite literally a lifeline for North Korea.

Axis of Evil

Trump Considering Embargoing China Over North Korea
By Gordon G. Chang

Late Sunday morning, President Trump tweeted an extraordinary statement. 

“The United States” he announced, “is considering, in addition to other options, stopping all trade with any country doing business with North Korea.”
And the president’s tweet does not appear to have been an off-the-cuff blast. 

Treasury Secretary Steve Mnuchin continued the theme in his “Fox News Sunday” interview later in the day when he announced he was preparing a sanctions package that will sever “all trade and other business” with North Korea. 

“I will draft a sanctions bill and send it to the president,” Mnuchin said to Chris Wallace. 

“We will work with our allies. We will work with China. But people need to cut off North Korea economically.”
Cutting off North Korea economically sounds like an embargo. 

And North Korea’s No. 1 trading partner—the country that accounts for slightly more than 90% of Pyongyang’s two-way trade when illicit commerce is counted—is China.
An American embargo almost surely will result in friction with Beijing and Moscow, but discord could be the price for denying Kim Jong Un the resources for his weapons programs.
There are many ways an embargo can be put in place. 

The Trump administration could simply declare one and then go about enforcing it on its own.
An alternative route would be for the White House to tell Chinese and Russian leaders that the U.S. intended to submit an embargo resolution to the Security Council and then demand they accept it without delay.
Why would Beijing and Moscow accept an embargo when they have consistently resisted far less strict measures? 

With regard to China, Russia’s senior partner in crime when it comes to North Korea, the Trump administration retains overwhelming leverage.
Chinese banks, for instance, are vulnerable to U.S. criminal prosecution and, more important, sanctions. 

Bank of China, named in a 2016 U.N. report for money laundering for Pyongyang, is especially at risk. 

The U.S. Treasury could fine the bank or even designate it a “primary money laundering concern” pursuant to Section 311 of the Patriot Act.
Such a designation would deny the bank access to dollar accounts. 

In other words, a Bank of China would, as a practical matter, be cut off from the global financial system. 

Call it, in essence, a death sentence.
Up to now, China has not had an incentive to cooperate with the United States with regard to North Korea because American presidents were loath to impose costs on the Chinese state. 

The feeling was that Washington could appeal to the better instincts of China’s leaders, or at least convince them it was in their long-term interest to support American efforts.
This generous approach, unfortunately, has not in fact worked. 

So it is time to make sure that the Chinese, even though they do not see things the same way as Trump officials, have no choice but to be cooperative.
Unplugging a major Chinese bank is one of the few acts that can motivate Beijing to accept and enforce an embargo. 

And so could a severe remedy imposed as a result of the ongoing Section 301 investigation into China’s theft of American intellectual property. 

One “301” remedy would be an across-the-board tariff on Chinese goods. 

Another would be an import ban on any enterprise benefitting from stolen IP.
Chinese officials, of course, can retaliate against the U.S. for a Section 311 designation or a Section 301 remedy, but Beijing might decide not to take on a far-stronger America, which is in a better position to wage an intensified trade war.
In ordinary times, drastic remedies like an embargo would not be necessary. 

Yet Kim Jong Un has not in fact been deterred by the relatively mild penalties now in place. 

China and Russia have signed on to Security Council sanctions, like those contained in Resolution 2371, precisely because they know they would be ineffective.
Kim is making such fast progress in building his arsenal that sanctions that were considered extraordinary just a few months before are now beginning to look politically feasible today.
As Trump and Mnuchin made clear on Sunday, America is about to cut off the flow of funds to the Kim regime.
Washington, I believe, goes a long way to disarming North Korea when it convinces Chinese leaders they finally have to make a choice, that they cannot support the North and do business with the U.S. at the same time.

Banana Republic

Jared Kushner and Ivanka Trump should recuse themselves from China policy
By Norman Eisen and Noah Bookbinder

The Godfather's family: Ivanka Trump and Jared Kushner. 

Coming on top of months of revelations of China-related conflicts involving Trump and his relatives, reports that Jared Kushner’s family used his position to solicit Chinese investors were a tipping point. 

The president’s son-in-law and daughter Ivanka Trump should now broadly recuse themselves from working on China-related issues.
According to media reports, Kushner’s sister pitched a roomful of Chinese investors to participate in the EB-5 visa program and qualify for a path to U.S. citizenship by investing at least $500,000 in a New Jersey real estate project, Kushner 1. 

The proposal included dropping Jared Kushner’s name, alluding to his administration role and noting that the president will be a key decision-maker about the future of the controversial visa program. 

The implications were unmistakable; one Chinese investor who attended told a reporter that the Kushners’ proximity to the president was a key part of the project’s appeal.
This sales pitch is clearly unacceptable. 

The family business should not benefit from Jared Kushner’s name and position as assistant to the president. 

Moreover, while it’s not clear whether Kushner had any knowledge of or involvement in this conduct, he retains a financial interest in many family businesses. 

Thus, he stands to benefit when the company trades on his name. 

Kushner’s lawyers assert that he sold his interests in this particular project to a trust of which he is not a beneficiary — although we know of no reason he couldn’t be reinstated as a beneficiary in the future.
Kushner and his wife have in the past said they will comply with all ethics rules. 

If so, as a starting point, Kushner must immediately take steps to ensure that businesses with which he is or has been associated refrain from using his position to promote investments. 

In fact, no Trump or Kushner companies should utilize the EB-5 program; the possibility for the appearance of improper influence, and perhaps worse, is too great. 

Kushner also initially indicated that he would recuse himself from “particular matters” involving the EB-5 program, but under pressure this weekend appeared to be stepping back more broadly from participating in any issues related to that program — a welcome development.
But given the complex ties at issue here, and the events of the past several months, that is not enough. Other ties and negotiations between Kushner companies and China have emerged in recent months, and under federal ethics rules, these interests must be considered together with those of Ivanka Trump, also a senior presidential adviser. 

Trump’s companies, in which she retains ownership interests, do business in China, and she was recently granted provisional approval for valuable trademarks by China just as she was engaged in high-level contacts with Chinese leaders.
These involvements raise profound questions about whether the couple should more broadly recuse themselves within the area of China policy. 

There can be little doubt now that both Kushner and Trump face at least the appearance of a conflict — indeed, of multiple conflicts — when it comes to China policy, particularly on issues of trade, investment and immigration.
As one of the president’s most trusted advisers, Kushner has a much broader and more fluid portfolio than most other administration officials. 

Kushner’s situation is vastly different than that of former Obama administration secretary of commerce Penny Pritzker, who was permitted to retain her interests in a publicly traded hotel company that has properties in China. 

Compared with Pritzker’s situation, involving a company that was required to file public documents with the Securities and Exchange Commission, there is much less transparency into Kushner or his family’s privately held business investors and lenders, or the degree to which these businesses are leveraged, at the same time that his influence within the administration appears unparalleled.
This is far more than a technical issue about the scope of ethics rules. 

We now face core questions about whether administration decisions relating to an important — perhaps the most important — foreign power are being made based on the interests of the country and the American people, or based on the business interests of senior officials.
Of course, we already had that concern with Trump himself, who has refused to divest from ownership of his global web of business interests.

With regard to China specifically, Trump has also received valuable trademarks from the Chinese government, including one that China had denied for a decade but granted after Trump switched course and reaffirmed the one-China policy. 

In addition, a bank owned by the government of China is a major tenant in Trump Tower in New York.
Can Kushner and Trump be trusted to protect American jobs from flowing to China or to pressure China if necessary in containing North Korea, or act appropriately on any of the other difficult issues that will arise with respect to China when these vast conflicts of interest persist?
It is well past time for this administration to begin drawing real and meaningful lines to avoid catastrophic conflicts of interest. 

The latest reports make it is even more important that Kushner and Ivanka Trump step forward and do the right thing. 

A broad recusal on China policy would be a good — and essential — start.

The Visionary Economist

Meet Mr. ‘Death by China,’ President Trump’s inside man on trade
By Steven Mufson 

Peter Navarro attends the "Death By China" screening at the Quad Cinema in New York City in August. He wrote, produced and directed the film.

If President Trump were to make a movie encapsulating his feelings about China, it might look a lot like this:
A red, white and blue ball with the word “jobs” appears on the screen. 

It rolls under the portrait of Mao Zedong through an animated Gate of Heavenly Peace, the iconic entrance in Beijing. 

There, where the ancient Forbidden City should be, belching smokestacks jut skyward.
Words then roll against a black background, saying that 57,000 American factories have disappeared since China joined the World Trade Organization and “began flooding American markets with illegally subsidized exports.” 

Next, a bread knife with the words “Made in China” is plunged into a map of the United States and animated blood runs out, trickling into the title: “Death by China.”
The movie actually exists, and it was written, produced and directed by Peter K. Navarro, a 67-year-old professor in the University of California at Irvine’s business school who is the head of the new White House National Trade Council. 

His task: to help rewrite the rules of global trade, from Mexico to China to Britain, and to bring back American manufacturing and jobs.
“The best jobs program is trade reform with China,” Navarro says in the movie, which is narrated by Martin Sheen, who starred in “Apocalypse Now” and as liberal hero President Josiah Bartlet in the TV series “West Wing.”

Mr Navarro has struck such a chord with Trump that he could end up playing an outsize role in the administration’s economic policy. 

The president’s announcement of his appointment called him “a visionary economist.”
“I read one of Peter’s books on America’s trade problems years ago and was impressed by the clarity of his arguments and thoroughness of his research,” Trump said in a statement. 

“He has presciently documented the harms inflicted by globalism on American workers, and laid out a path forward to restore our middle class.”

National Trade Council adviser Peter Navarro, right, and White House Chief of Staff Reince Priebus, center, wait for President Trump to sign three executive orders on his first Monday in office.

Putting nations on notice
Few of the people Trump has brought into the White House seem to be so in tune with the president. And for the moment at least, he has filled a policy vacuum by being visible while other Cabinet nominees struggle with confirmation.
Navarro has been one of just a handful of White House officials at Trump’s side for the signing of executive orders, such as withdrawing the United States from the Trans-Pacific Partnership and blocking federal funds for groups that provide abortions or abortion counseling.
In early February he attended a White House meeting about trade that included Trump and the Hill’s “big four” — Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) and ranking Democrat Ron Wyden (Ore.), House Ways and Means Committee Chairman Kevin Brady (R-Tex.) and ranking Democrat Richard E. Neal (Mass.).
On Feb. 14 and 15, he briefed Senate Finance Committee members. 

According to people there, Navarro laid out principles — free and fair trade; bilateral deals, not multilateral ones; a reduced trade deficit; a strengthened defense industrial base; and automatic triggers for renegotiation when trade deficits occur.
Although he didn’t describe any mechanisms, Navarro also listed about a dozen more specific trade goals, including boosting the number of U.S. parts in imported finished goods; developing tools to punish currency ma­nipu­la­tion; cracking down on intellectual property theft that Navarro said cost $300 billion a year and “steals the seeds of innovation for the future”; and restricting heavily subsidized, state-owned ­enterprises.
He also said that World Trade Organization decisions had been “unfair” to the United States and that Chapter 19 of the North American Free Trade Agreement had allowed Canadian softwood lumber exporters to avoid duties. 

Navarro said that the Canadians “have played us.”
And like Trump, Navarro has put other countries on notice that the United States would confront its major trading partners even when they are close allies. 

In a ­Jan. 31 interview with the Financial Times, Navarro sent shock waves through Europe when he said that Germany was getting an unfair competitive advantage by manipulating the euro to lower its value and make its exports ­cheaper.

In 1996, Peter Navarro, then a Democrat, hoped that the backlash against the “Republican Revolution” led by House Speaker Newt Gingrich would sweep Democrats into office. Navarro used this flier in his unsuccessful campaign to unseat Rep. Brian Bilbray (R-Calif.).

‘The one that got away’
Navarro got his start in politics at the local level — as a Democrat. 

He ran unsuccessfully for mayor of San Diego in 1992, city council in 1993, county supervisor in 1994 and Congress in 1996.
“My citizen activism is a direct outgrowth of a classical and fiscally conservative training in economics at Harvard,” he wrote in “San Diego Confidential,” a revealing, cutting and readable memoir of his years in politics there. 

“It is a perspective rooted in one of the most important concepts in economics — the need for government intervention in the presence of a market failure.”
Initially he became active in a popular local group called Prevent Los Angelization Now (PLAN) opposing developers.
“A city should decide where it doesn’t want to develop,” he wrote, “saving at least some of the canyons and hillsides and wetlands from the bulldozer’s blade.”
But instead of running for county supervisor, a race he might have won, Navarro jumped into the San Diego mayor’s race. 

His opponent, Susan Golding, launched three negative ads and he responded with an ad attacking Golding, whose ex-husband was convicted of laundering illegal drug money. 

Ahead in the polls going into the last weekend of the race, Navarro attacked her again in a televised debate. 

In tears, she called the attacks on her family unfair; Navarro accused her of rehearsing the response and came off as dismissive. 

He lost.
Years later, he wrote that he still thought about “the one that got away.”
“He was almost the mayor,” said Larry Remer, a political consultant who worked on three of Navarro’s campaigns after that one. 

“He flubbed it, is what really ­happened.”
Remer said Navarro was a hard-working candidate who “realized the need to stay on a clear, concise message, a lot like ‘make America great again.’ Nothing could appeal to people in San Diego more than saying ‘not L.A.’ ”
But, he added, what undid Navarro as a candidate was his personality. 

“He would just burn through volunteers,” Remer said.
“He’s not quite as prickly as Trump, but he has the same ego issues.”
In 1996, Navarro took on then-U.S. Rep. Brian Bilbray (R-Calif.), hoping that the backlash to the Newt Gingrich revolution would sweep a Democrat into the House. 

He later wrote that Bilbray “was as much of an idiot as he was when he first ran” for Congress “but this time he was an idiot with a record — a bad one.” 

Nonetheless, heavily outspent, Navarro lost soundly.
Discouraged, divorced and in debt, he moved on.
In the mid-2000s, Navarro latched onto the issue of China’s growing global ambitions.

A ‘decent trade deal’
Navarro resurrected his public persona by turning to writing, doing a set of online basic economics books and a how-to investing book titled “If It’s Raining in Brazil, Buy Starbucks.”
In the mid-2000s Navarro latched onto the issue of China’s growing global ambitions, writing “The Coming China Wars,” “Death by China” and “Crouching Tiger; What China’s Militarism Means for the World.”
According to the New Yorker, Navarro in 2011 read that Trump told the Chinese state news agency Xinhua that he liked Navarro’s first book on China. 

They communicated after that but met in person only during the presidential campaign, when Navarro was one of the few economists to take Trump seriously.
At times, Navarro sounds moderate. 

“The last thing a Trump administration plans is a trade war,” he said at a Tax Policy Center event in October. 

“The issue simply is getting a decent trade deal with each of the major trading partners.”
And many of the issues he raises about China are real: Chinese companies steal intellectual property, receive cheap credit from Chinese banks, pay lower wages, and cough up more pollution and pay less for pollution controls. 

Navarro estimated in 2006 that unfair trade practices accounted for 41 percent of China’s competitive advantage over U.S. firms.
But the film, in which Navarro attempts to be toward China what Michael Moore is to the automobile industry, is hyperbolic in tone. 

It includes comments by AFL-CIO leader Richard L. Trumka, ordinary shoppers and Navarro himself, who fires salvos at American corporations that do business in China.
The narrator says that “no company has been happier” to move its capital offshore than General Electric. 

Then Navarro appears and interjects. 

“When I go out and do speeches to corporate audiences on China, they want me to talk about strategy,” he says. 

“It’s like, ‘Hey, you’re going over to China. You’re giving them your avionics so you can participate in a regional jet game in China, and two or three or five years from now you’re going to try to sell your regional jets in Europe — and your biggest competitor is going to be that China guy. How stupid is that?’ ”

Peter Navarro, a University of California at Irvine business professor and economist, seen in August, is one of President Trump’s most visible advisers on the economy.

Navarro’s toughest audience has been his fellow economists.

Now, as a key Trump adviser, Navarro has run into more flak.

In a paper he wrote last year with now-Commerce Secretary Wilbur Ross, Navarro said that Trump could impose tariffs and encourage changes in consumer buying habits to erase the huge U.S. trade deficit. 

That would go hand in hand with greater investment in the U.S. economy.
Navarro and Ross say that getting rid of the trade deficit and boosting investment would also spur faster economic growth, which would bring in $1.74 trillion in tax revenue over a decade.
But if the United States erects tariff barriers to China, factories might go to other lower-cost countries such as Vietnam, Bangladesh or India.

Furman said that “if you’re trying to intimidate companies about moving operations or yell at them over supply chains, that’s not the way to make America a more attractive place. The way to do that is to build infrastructure, train workers and invest in technology, not to just beat up on other ­countries.”

Navarro’s close relationship with Ross could serve him well when Cabinet members arrive and leadership on issues grows more fractured, potentially creating rivalries with more savvy infighters such as National Economic Council head Gary Cohn. 

Yet for now, Navarro and Ross appear to be in sync with the president and his threats on trade.
That position is one that Navarro has held for at least a decade. 

His “Death by China” film takes a video of Obama speaking in the White House briefing room and splices in a Chinese soldier who removes the White House insignia behind Obama and puts up a Chinese flag.
The film also shows an empty factory with broken windows and unemployment lines, and juxtaposes that with Chinese container ships and busy Chinese factory workers. 

In the end, the credits roll to the tune of a glum, folky song whose lyrics Navarro helped write.

“Look around, tell me what you see.

Every day more people in the street.

I used to work in a factory.

By now I’d work for anything

It’s not me, it’s my family I wish to feed.

Not much, we got simple needs.

Too bad they sent our jobs away.

In China they’re not workers, they’re just slaves.

People, wait, it’s a world of trade and greed.

And the CEOs get richer, and our jobs all move offshore.”

It could be an ode describing the plight of Trump’s supporters. 

And it struck a chord with one crucial viewer, who said in a blurb on the film’s Web page: “Death by China” is right on. This important documentary depicts our problem with China with facts, figures and insight. I urge you to see it.”
The reviewer: Donald Trump.

World’s oldest and largest democracies vs. China's dictature

The US-India-Japan Trilateral: Economic Foundation for a Grand Strategy
By Hemal Shah

What happens when the world’s oldest, largest, and most responsible democracies meet? 

Six years ago, the United States, India and Japan set up their first official trilateral meeting and decided to meet annually. 

Together, they represent 25 percent of the world’s population and 35 percent of global GDP. 

Common goals of economic development, managing China’s territorial aggression in South and East Asia, and preservation of the liberal democratic order bind them together. 

Undoubtedly, they make a compelling strategic logic to come forward and work together to ensure peace and stability in the Indo-Pacific region.
But so far, this trilateral has failed to graduate from constructive symbolism to actual substance. 

The absence of a robust economic foundation is stunting its strategic potential. 

A deeper economic engagement will enmesh each other’s priorities, giving shape and form to their strategic goals in the Indo-Pacific region.
Skeptics are right when they question the real value of this partnership: The Obama Administration’s “pivot to Asia” is arguably dead and Asian allies and partners are rethinking their reliance on the United States. 

In a last-ditch effort, despite his unpredictability, hopes are pinned on President Trump’s promise of standing up to China’s belligerence. 

In India, one wonders if Prime Minister Modi’s “Look East” policy involves the United States, or is a strategy to exclusively strengthen East Asian camaraderie. 

India is still a developing country, remains uncomfortable with any labels of “alliances,” and its relationship with Japan is largely defined by development assistance rather a trade partnership. 

Meanwhile, the U.S. withdrawal from the Trans Pacific Partnership and Trump’s inward-looking trade policies signal a huge blow to Prime Minister Abe’s attempt at addressing Japan’s economic woes.
China unites them. 

Its military continues to encroach on India’s northeastern border; while refusing to scale down its territorial infringement on international waters in the East and South China Sea. 

But China also divides them: The trio flirted with establishing a “democratic quadrilateral” with Australia in 2007, which was quickly dismantled for fear of ruffling China’s feathers. 

The combined trilateral trade of $400 billion pales in comparison with U.S.-China trade of $660 billion alone.
Yet this combination — America’s commitment to democracy and robust military capabilities, the promise of India’s rapid economic growth and strategic location in the Indian Ocean, and Japan’s initiative to protect the collective freedom of navigation for trade — cannot be squandered away. 

For the trilateral to succeed and mount the pinnacle, economic goals should drive the relationship to move from symbolism to functionality, and eventually substance. 

It will also help assert India’s foreign policy posture in the region.
First, the trilateral should be used to strengthen the respective bilateral relationships. 

The United States and India have never been closer but need to act on a clear plan to rise from their goal of $100 billion to $500 billion in bilateral trade. 

They need to prioritize the free trade deal and operationalize the nuclear deal that marked the peak of their relationship.
The shifting dynamic of the revered U.S.-Japan alliance should be addressed. 

In their upcoming bilateral summit, both Trump and Abe need to resolve qualms on trade and tariffs, cost of basing U.S. forces, and a renewed Japanese commitment to stand up for the United States with the reinterpretation of the Constitution on collective self-defense. 

While the India-Japan relationship enjoys an enviable bonhomie, their bilateral trade currently hovers just around $15 billion. 

Leadership chemistry could tie the partnership well together. 

For instance, the indomitable kinship between Modi and Abe, and their respective optimistic beginnings with Trump, should be leveraged for the upcoming dialogue in Delhi this summer.
Second, the United States and Japan should double down to propel economic reform in India. 

As a non-ally of the United States, India is the odd man in the relationship. 

As a developing country, joint strategic goals also mean opportunity costs when capital is deployed to scale up economic prowess. 

At the government level, the United States and Japan are best placed to work together to share recommendations with India on ease of doing business and global best practices on trade facilitation. Modi is competitive and wants India to rise up the ranks of global indices measuring business friendliness. 

The United States and Japan should also help develop India into a major logistics hub in the Indian Ocean region – witness to 40 percent of global trade – and help design the criteria for their new ranking on logistics performance for states. 

They should also work as partners to improve India’s innovation and intellectual property environment to enable defense technology transfer as well as address liability issues with regard to their respective nuclear deals with India.
Third, the government-level dialogue should create a forum on the sidelines to involve the private sector. 

This will inject the missing ingredient to pivot the economic relationship forward. 

The three countries could start with a shortlist of jointly investable projects and exclusively identify special economic zones. 

For example, the Delhi-Mumbai Industrial Corridor currently being developed by Japan offers several opportunities for U.S. companies. 

As India moves into a cashless economy, already well-established U.S. financial services companies could help set up payment systems for the Japanese high speed rail project between Mumbai and Ahmedabad in India. 

The United States and Japan could also adopt a Smart City in India to develop urban infrastructure.
In light of Trump’s deal-making nature, Modi’s incremental shift away from a nonaligned foreign policy, and Abe’s vision of a more assertive Japan, a stronger trilateral partnership makes sense. 

It is heartening to see their annual Malabar naval exercise graduating from a relationship of trust and goodwill to that of building joint capabilities. 

Japan’s emphasis on a long term Asia strategy and patience with India can help neutralize America’s impatience to socialize India to play a bigger role in regional strategic affairs, and ultimately use the platform to reaffirm the liberal world order. 

A strong economic foundation would best dictate the grand strategy of this trilateral partnership.

Expert: Trump must be firm, strong in China dealings

Chinese companies can own companies outright in the United States, but that's not the case for U.S. companies in China
By Eric D. Lawrence

An expert on China's impact on the U.S. auto industry might agree with President Donald Trump's strong stance on dealing with China, at least when it comes to trade.
Michael Dunne, author of "American Wheels, Chinese Roads," offers some advice for Trump:
"Be very strong and very firm," Dunne said today during an Automotive Press Association luncheon at the Detroit Athletic Club. 

The "Chinese respect when you are strong and firm."
Dunne said reciprocity should be the rule in negotiating trade deals.
"We should have equal access in each market. Today that's not the case," Dunne said, describing the differences U.S. and Chinese companies face in the other country's markets.

Chinese companies can own companies outright in the U.S., but that's not the case for U.S. companies in China. 

Among the hurdles for American companies in China is the requirement that they form a joint venture with a Chinese company, and the U.S. companies are not allowed to own more than 50% of the new entity.
Such requirements along with extra costs associated with exporting to China are unique and should not be accepted, Dunne said, noting that if China doesn't open its market to the U.S., then the U.S. should impose similar joint-venture requirements on Chinese companies.
“India doesn’t have it, Russia doesn’t have it, no other country has it," he said. 
“We should be able to control our own destiny in China with our business."
Not all differences, however, relate to trade deals.
Dunne said Chinese businesspeople like to ease into business discussions because they want to feel comfortable with potential partners.
He said he had once been given advice to take Chinese business people to a nice dinner on the first day of a multiday business trip here. 

By the second day, business could be discussed, but plowing immediately into business discussions was not advised.
Dunne described how China's dealings with foreign companies had changed over the years, from one in which foreign companies had advantages early on to today, in which the Chinese have the advantages at home.
The goal of the country's political leadership had been to build a huge home market and protect it.
As China's annual vehicle sales have grown from 2 million in 2000 to 27.5 million in 2016, imports represent less than 4% of that total.
By 2020, Dunne said, there would be more cars in China than in the U.S.
"What's sold in China is built in China," Dunne said.
As these changes have occurred, China's investments in the U.S. have grown dramatically as well. Dunne said that from 2010-16, Chinese entities had invested $5 billion in the Midwest supplier base. He noted that the Chinese already have a presence here, referencing Beijing West Industries, which, according to Crain's Detroit Business, acquired Delphi's global brake and suspension business in 2009.
The company is currently involved in vehicle testing in Milford.
In California, where Dunne lives, six companies with Chinese connections have located, with ambitions to build high-end, electric and autonomous vehicles.
He noted that Faraday Future, which is based in Gardena, is connected to a Chinese billionaire who runs the "Netflix of China."
The company says it has created the world's quickest electric car.
And further disruption is coming through the production of cars being built in China for shipment back to the U.S.
The Free Press had previously reported on plans to sell Buick's Chinese-made Envision crossover in the U.S.
Nothing about that vehicle suggests it was built in China, Dunne noted.

Two Chinas Policy

• Bolton Says Trump Moves Signal A Tougher China Line
• The Taiwan call laid the foundation for a different relationship

Reuters

Former U.S. Ambassador to the United Nations John Bolton arrives for a meeting with U.S. President Donald Trump at Trump Tower in New York, U.S., December 2, 2016.
One of Donald Trump’s possible picks for secretary of state said on Friday that the president’s criticisms of China and phone call with Taiwan’s president could signal a different relationship with Beijing and a tougher line on issues from trade to the South China Sea.
In a speech on Thursday in Iowa, Trump said the United States needed to improve its relationship with China, which he criticized for its economic policies and failure to rein in North Korea.
“That and the call to Taiwanese President Tsai Ing-wen that was arranged a week ago certainly lay the foundation for a different relationship (with China),” John Bolton, a former U.S. ambassador to the United Nations under President George W. Bush, told Fox Business.
Bolton, a conservative seen as being among the contenders to be Trump’s secretary of state, said Trump expected countries to live up to commitments they have made on issues such as trade.
“The Chinese have not just been doing that,” Bolton said, while also highlighting China’s political and military steps “to make the South China Sea into a Chinese province.”
Asked if he thought Trump’s remarks were a statement of intent and an opening negotiating position, Bolton said, “I think that’s at least what it is, and it may be more than that as well. You could use the Taiwan relationship to play off against their performance in the South China Sea.
“It was very important that he mentioned what I’ve seen for the past 15 years, which is that China says they’re being helpful with the North Korean nuclear weapons program, when in fact they’ve done precious little,” he said.
In an opinion article last January in The Wall Street Journal, Bolton proposed using degrees of escalation on Taiwan that could start with receiving Taiwanese diplomats officially at the State Department and lead to restoring full diplomatic recognition, to pressure China to step back from its pursuit of territory in East Asia.
Experts saw Trump’s call with Tsai on Dec. 4 -- the first by a U.S. president with a Taiwanese leader since Jimmy Carter switched diplomatic recognition to China from Taiwan in 1979 -- as an opening salvo in a strong test of wills with Beijing.

America’s Dangerous ‘China Fantasy’

Economic development, trade and investment have yielded greater political repression and a more closed political system.

By JAMES MANN

Wang Qiaoling, left, and Li Wenzu with photos of their husbands, human rights lawyers in China who have been detained since July 2015.

Throughout the 1990s and early 2000s, American business executives and political leaders of both parties repeatedly put forward what I label the “China fantasy”: the view that trade, foreign investment and increasing prosperity would lead to political liberalization in the world’s most populous country.
“Trade freely with China, and time is on our side,” said President George W. Bush. 

He was merely echoing his Democratic predecessor, Bill Clinton, who called the opening of China’s political system “inevitable, just as inevitably the Berlin Wall fell.”
To say the least, things in China haven’t turned out that way.
Over the past few years, the Chinese regime has become ever less tolerant of political dissent — to such an extent that, these days, American leaders have become far more reluctant to make claims about China’s political future or the impact on it of trade and investment. 

The “China fantasy” got the dynamics precisely wrong: Economic development, trade and investment have yielded greater political repression and a more closed political system.
This amounts to a new China paradigm: an intensely internationalized yet also intensely repressive one-party state. 

China provides the model that other authoritarian regimes, from Russia to Turkey to Egypt, seek to replicate. 

As a result, the United States will find itself struggling with this new China paradigm again and again in the coming years.
In using the word “repression,” I am talking about organized political activity, not private speech. Visitors to China are sometimes surprised to find that cabdrivers, tour guides or old friends may speak to them with candor, even about political subjects. 

However, what such people can’t do is to form an organization independent of the Chinese Communist Party or take independent action to try to change anything.
Indeed, over the past two years the Chinese government has been moving in new ways against people and institutions that might, even indirectly, provide support for independent political activity. 

It has tightened the rules for nongovernmental organizations. 

More recently, it has been arresting Chinese lawyers. 

It has also been staging televised confessions, a practice reminiscent of Stalin’s show trials.
Why is it that trade and investment have led to a Chinese regime that represses dissent more than it did five, 10 or 20 years ago? 

The answer, put simply, is that the regime thinks it needs to do so, can do so and has fewer outside constraints inhibiting it from doing so.
First, it needs to because as the economy develops and grows more complex, Chinese citizens are having new grievances of the sort that would otherwise lead to organized political activity. Environmental problems have multiplied. 

Consumers worry about product safety (tainted milk, for example) and accidents (like train wrecks). And at least to educated Chinese, internet censorship can be an annoyance, if not an insult.
Second, China’s security apparatus has a much greater capacity to repress dissent than it did in the past.
Technology gives it greater capacity to control both physical space (the streets) and cyberspace (the internet).
Finally, the world’s increased commercial involvement with China over the past two decades has made foreign leaders more reluctant to do anything in response to Chinese crackdowns, lest the Chinese regime retaliate. 
This is in large part a problem of perception: In fact, the Chinese regime cares about its standing in the world and would seek to avoid international condemnation if world leaders took stronger stands and worked together.
Almost forgotten now is that in the 1990s, the United States, possessing far greater economic leverage in dealing with China than it has today, threatened trade restrictions if Beijing did not improve the human rights climate.
After intense debate, the Clinton administration eventually backed away from threats to limit trade with China.
The aftermath of that debate was disastrous. 
American leaders overreacted by deciding to avoid any further strong actions in support of human rights in China. 
Instead, they offered the “China fantasy”: the idea that change would come inevitably.
At one point, giving voice to the optimism and the false assumptions about how trade would liberalize China, Clinton told China’s president, Jiang Zemin, at a Washington news conference, “You’re on the wrong side of history.”
History, however, is rendering its own judgment — that America’s confidence in the political impact of trade with China was woefully misplaced.
Looking forward, we are obliged to deal with a China capable of moving endlessly from one crackdown to another, no longer interrupted by the occasional easings or “Beijing Springs” of the past.
It will be a different China, in which educated, middle-class people may be less loyal, but their views also less influential.
What we can do is to keep expressing as forcefully as possible the values of political freedom and the right to dissent.
Democratic governments around the world need to collaborate more often in condemning Chinese repression — not just in private meetings but in public as well. 
We should also find new ways to single out and penalize individual Chinese officials involved in repression. 
Why should there be a one-way street in which Chinese leaders send their own children to America’s best schools, while locking up lawyers at home?
The Chinese regime is not going to open up because of our trade with it.
The “China fantasy” amounted to both a conceptual failure and a strategic blunder. 
The next president will need to start out afresh.