Here are the reasons for President Trump's war with China

On Friday the US president ordered companies to halt business with the “enemy” Xi Jinping

By Dominic Rushe in New York

Even by President Trump’s standards his Twitter rant attacking China on Friday was extraordinary. 

In a series of outbursts President Trump “hereby ordered” US companies to stop doing business with China, accused the country of killing 100,000 Americans a year with imported fentanyl and stealing hundred of billions in intellectual property.
The attack marked a new low in Sino-US relations and looks certain to escalate a trade war already worrying investors, manufacturers and economists.
Not so long ago President Trump called Chinese dictator Xi Jinping “a good friend”. 

Now Xi is an “enemy”. 

How did we get here?

China, China, China
On the campaign trail President Trump railed against China, accusing it of pulling off “the greatest theft in the history of the world” and “raping” the US economy.

President Trump repeated the word China so often it spawned a viral video of him saying it over and over again. 

The attacks were a hit with voters and helped get him elected. 

He has continued lambasting China – to cheers – at rallies ever since.
His main beef? 

The trade deficit.

Trade deficit
The US imported a record $539.5bn in goods from China in 2018 and sold the Chinese $120.3bn in return. 

The difference between those two numbers – $419.2bn – is the trade deficit.
That deficit has been growing for years as manufacturing has shifted to low-cost China and it explains the hollowing out of US manufacturing.

For President Trump, and especially for his adviser Pr. Peter Navarro, who once described China as “the planet’s most efficient assassin”, trade deficits represent an existential threat to US jobs and national security. 

China makes up the largest part of the US trade deficit but those fears are also behind his disputes with the EU, Canada and Mexico.

His pro-Beijing detractors argue these deficit worries are hyperbole and a result of the US’s stronger economy, which allows consumers to buy goods at cheaper prices.
While it’s true that unemployment is at record lows and consumers continue to prop up the economy, manufacturing jobs have been lost and with them wage growth.
But it is not just deficits that concerns Trump.

Thieves
China has a deserved reputation for intellectual property theft. 

On Friday, President Trump estimated China robs the US of “hundreds of billions” a year in ideas.

In March, a CNBC poll found one in five US corporations had intellectual property stolen from them within the last year by China.
According to the Commission on the Theft of American Intellectual Property, the theft costs $600bn a year.

Beijing bucks
Like Tesla, Nio, a Chinese electric vehicle (EV) company, is suffering as subsidies for EVs are phased out. 

Unlike Tesla, Nio has Xi. 

China is pumping $1.5bn into the company to keep it on the road, the latest in a series of handouts that are unfair.
Cheap steel and aluminium, subsidized by the Chinese government, are the origins of this trade dispute. 

According to the White House, last year alone China dumped and unfairly subsidized goods including steel wheels, tool chests and cabinets and rubber bands on to the US market.

Currency manipulator
Earlier this month the US officially accused China of manipulating its currency “to gain unfair competitive advantage in international trade”.
It was the first time since 1994 that such a complaint has been made official and comes as the dollar has strengthened against world currencies. 

The dispute adds another layer of tension to a complex situation.
China disputed the charge accusing the US of “deliberately destroying international order” with “unilateralism and protectionism”.
The International Monetary Fund (IMF) is on China’s side, arguing the devaluation of the yuan is largely in line with worsening economic conditions in China.

What happens next?
The US has now slapped billions of dollars on tariffs on Chinese goods. 

China retaliated, again, on Friday with more levies on US goods. 

China’s economic growth has slowed to levels unseen since 1992; US economic forecasts have also been cut.

So far US consumers have not felt the pinch but JP Morgan estimates the average US household will end up paying $1,000 a year for goods if the latest set of tariffs go through.

The unanswerable question is whether any of this will sway President Trump. 

If the President continues to see a war with China as the necessary price to Make America Great Again, then the answer is probably no.

Here's How President Trump Can Formally Call China a Currency Manipulator

• U.S. hasn’t designated any country since naming China in 1994
• White House pressure builds for Mnuchin to designate China

By Saleha Mohsin
If President Donald Trump wants to follow through on his repeated threats to label China a currency manipulator, all he has to do is turn back the clock.
The Treasury Department hasn’t accused China of artificially suppressing the value of the yuan because it relies on a 2015 law that sets strict standards for the designation. 

But a 1988 law -- still in effect -- sets a looser standard. Treasury Secretary Steven Mnuchin simply has to use it, said several former department officials.
The U.S. is “looking very strongly at the formula” it uses to decide whether China and other countries are manipulating their currencies, President Trump said in an Aug. 30 interview with Bloomberg News. 

The White House is putting pressure on Mnuchin to publicly shame China and he has gotten increasingly involved in the department’s twice-yearly currency analysis, usually released in October, according to two people familiar with the matter.
Declaring China to be a currency manipulator wouldn’t trigger any sanctions or other U.S. penalties, but it would escalate trade tensions and likely cause a market reaction.
“The U.S. has a lot of issues with China, and this is another way for the administration to say: We’re not happy with the way things are going,” said Phillip Swagel, a Treasury official during the George W. Bush administration. 

“It’s more of a symbolic finding. It could support action down the road.”
President Trump’s latest threat comes as trade wars and the prospect of monetary tightening from the Federal Reserve roil emerging markets, with currencies from Turkey to India slumping to record lows against the dollar. 

China has taken action over the past month to support the yuan, including using the daily fixing to rein in declines and making it more expensive to short the currency.
The yuan has weakened 6.5 percent against the dollar over the past three months, slipping in August to its lowest value since January 2017.

The U.S. Treasury hasn’t branded any country a manipulator since Bill Clinton was in the White House. 

China was named five times from May 1992 to July 1994.
The Omnibus Trade and Competitiveness Act of 1988 gives the Treasury secretary broad discretion to use a wide range of data -- including foreign exchange reserve coverage, capital controls, monetary policy and inflation -- to make a decision. 

The law’s definition is “very elastic,” said Brad Setser, who did international economic analysis at Treasury during the Obama administration.
The Trade Facilitation and Trade Enforcement Act of 2015, however, lays out specific criteria a country must meet to be labeled a currency manipulator. 

It instructs Treasury to use three tests: A minimum $20 billion trade surplus with the United States, a current account surplus in excess of 3 percent of GDP, and repeated interventions in currency markets.
Right now, China meets only one test -- the U.S. trade deficit with China hit $375 billion last year.
But Treasury can change the threshold levels, giving Mnuchin another way to fulfill President Trump’s wish.
The Treasury Department’s most recent currency report, released in April, explicitly noted that a country might be found a currency manipulator under the standards of one law but not the other.

Mnuchin’s Prior Role
Mnuchin played a limited role in the first three reports issued since he took office, changing just a few lines in each, according to two people familiar with the matter. 

President Trump contradicted Treasury’s findings just three days after the latest report, speculating that China and Russia are gaming their currencies. 

Mnuchin has told the White House that it’s not easy to label China a currency manipulator, frustrating officials who see him as more loyal to bureaucracy than to President Trump’s agenda.

China doesn’t disclose its interventions in the foreign-exchange market. 

But Treasury’s own currency reports acknowledge that China hasn’t intervened heavily in the market since early 2017. 

Following China’s surprise one-time devaluation in August 2015, the central bank was actually intervening to prop up the currency -- not drive it down, as President Trump has accused Beijing of doing.

China’s central bank signaled last month it’s taking action to support the yuan, meaning the country is working to shore up the currency.

Moron or Lap Dog?

Chuck Schumer: Trump acts like a lap dog to China

By Laura Barrón-López

Senate Minority Leader Chuck Schumer D-N.Y. called Trump’s marathon trip to Asia a “flop” on Sunday.
Schumer, a fervent supporter of labeling China a currency manipulator, urged the administration earlier this year to name China a manipulator. 

On the campaign trail, Trump vowed repeatedly to combat currency manipulation and slap China with a label.
“Trump Asia trip a flop: POTUS acts like a lap dog to Xi and China, but talks tough to our friends in Southeast Asia. Presidency by misadventure,” Schumer tweeted.

Trump reversed his stance on labeling China a manipulator earlier this year, and after meeting with Xi Jinping this week, Trump heaped praise on China. 

Trump also took a complete 180 on his view of China’s trade practices, which he’s called unfair.

The president blamed the U.S. for the trade gap between the two countries.

US–China Non-Aggression Pact

Trump follows Nixon to China
by W. James Antle III 

Only Richard Nixon could go to China, but Trump may follow in his footsteps.
In the past week, the administration has softened its rhetoric about China while taking a noticeably harder line against Russia.
The Trump Treasury Department declined to label China a currency manipulator on Friday, although the country was one of six major trading partners placed on a "monitoring list." 

"They're not currency manipulators" is a sentence that came out of the president's own mouth earlier in the week.
On Russia, however, Trump is pulling a Nixon-to-China transformation in reverse. 

"Right now, we're not getting along with Russia at all," the president said Wednesday. 

"We may be at an all-time low in terms of a relationship with Russia. This has built for a long period of time."
At the same press conference, Trump spoke almost warmly of China's political leaders.
"President Xi wants to do the right thing," he said. 

"We had a very good bonding. I think we had a very good chemistry together."
In both cases, Trump is departing from his campaign rhetoric. 

He regularly denounced China's allegedly predatory trade and currency valuation practices on the stump while he frequently declined to criticize Russian President Vladimir Putin. 

After winning the presidential election, Trump was slow to embrace the intelligence community's conclusion that Russian hacking occurred during the 2016 campaign.
This transformation seemed complete when China abstained on the United Nations Security Council rather than siding with Russia in seeking to thwart a UN resolution condemning Syria for using chemical weapons, an act that triggered a U.S. military response ordered by Trump.
"I think it's wonderful that they abstained. As you know, very few people expected that," Trump said while standing next to NATO Secretary General Jens Stoltenberg at the White House. 

"We are honored by the vote. That's the vote that should have taken place."+

Trump still says he hasn't given up hope he can improve relations with Russia. 

"It would be wonderful, as we were discussing just a little while ago, if NATO and our country could get along with Russia."

"And I'll also see about Putin over a period of time," Trump added later. 

"It would be a fantastic thing if we got along with Putin and if we got along with Russia. And that could happen, and it may not happen, it may be just the opposite."
Nixon, a fervent anti-communist, used his opening with China against the Soviet Union. 

Few see any similar connection here, other than that Trump has allowed his advisers to be much tougher on Russia out of the gate than ever seemed likely during the campaign.
"One way to read events is that Trump hoped that he could shift Putin toward a more pro-U.S. position," writes Walter Russel Mead. 

"The Bannonite dream of a Christian coalition against Islam may have been a factor, but Trump seemed to hope that he could dramatically simplify America's complex Middle East dilemmas by peeling Russia away from Assad and Iran."
A Republican diplomat recalled watching past officials like Secretaries of State Colin Powell and Condoleezza Rice in their negotiations with difficult foreign governments.
"We Americans like to sit across the table and make moral arguments to the other side," the diplomat said. 

"We say things like 'You should do this because it's what the international community wants,' or 'It's the right thing,' or 'We need you do this.'"
"The Russians don't give a shit about any of that," the source concluded, adding that moral suasion was not always an effective tool in dealing with China, Egypt, Saudi Arabia or increasingly even NATO ally Turkey.
According to this view, Trump's flexibility and willingness to talk about interests rather than values (although he has made moral arguments against the behavior of the Syrian government) are assets.
Trump can say he wants a better relationship with Putin's Russia, but can also demonstrate he is willing for relations to remain hostile.
None of this will endear Trump to Democrats — and a non-trivial number of Republicans — who view the president's interest in Russia with suspicion and believe the probe of Russian interference in U.S. presidential election will ultimately reveal unsavory ties.
Senate Minority Leader Chuck Schumer, D-N.Y., is already trying to outflank Trump on China and thereby win back some of the working-class voters they lost to the president's populist appeals last year.
"We are urging him to get tough on China," Schumer told reporters Tuesday. 

"If he does, he'll find a willing and eager partner in Democrats."
Plenty of national security observers worry that there is no grand Art of the Deal strategy behind Trump's recent maneuvers and that the new president is simply winging it on the world stage.

Presidential Circus

Trump backtracks on China, won't label it a currency manipulator
By Evelyn Cheng

Confirming a reversal on tough China talk, Donald Trump told The Wall Street Journal Wednesday that he will not label the Asian country a currency manipulator in a report due this week.
"They're not currency manipulators," Trump said in the interview.
The president also said putting the label on China now could jeopardize U.S. talks with Beijing on the North Korean threat, according to the Journal.
What the White House is doing is "they're going back to a very traditional China policy which is a disappointment to many of their hardcore supporters," said Gordon Chang, author of "The Coming Collapse of China." 

"There's going to be political punishment."
Trump "will be punished by autocrats in Beijing," Chang said. 

"He's showing weakness."
Slapping the label on China had been one of Trump's key campaign promises. 

He also appointed China hawks such as Peter Navarro to key positions on trade, and, until recently, favored Steve Bannon and his nationalist stance.
Now, advisors who appear to have a less protectionist viewpoint such as Gary Cohn, director of the U.S. National Economic Council and former president of Goldman Sachs, seem to have more sway over Trump.
In the Treasury Department's most recent review in October, China met only one of three criteria set down by the United States before it can label the communist country a currency manipulator. 

The Treasury is expected to update the report this month.
"The question now is whether getting Chinese cooperation on North Korea has become so important that the administration is willing to accept token gestures from China that reduce the trade deficit but do nothing to address the breadth and depth of Chinese industrial policy," said Scott Kennedy, a China expert at the Center for Strategic and International Studies.

Protectionism in China is growing, German ambassador says

By Leslie Shaffer

Level playing field for foreign companies needed: German ambassador

China's leaders may be touting efforts to offer foreign investors a level playing field, but on the ground, protectionism appears to be growing, Germany's ambassador to China told CNBC.
"It doesn't matter which trading partner you talk to – be it the Japanese or the U.S. or neighboring countries or European countries. They all feel the same, that there's a growing protectionism here," Michael Clauss, the German ambassador to China, told CNBC's "Squawk Box" on Monday.
He noted that the protectionist concerns related to German investments within China.
"The service sector is basically off limits. Many companies that would like to produce here in China and build a factory and start producing are forced into going in a joint venture," he noted.
"It's also frequently they're asked to transfer technology, which is against the rules of the WTO. And the tendency seems to be growing. That's the complaint we get from German businesspeople."
But Clauss pointed to signs that Chinese rhetoric on trade and investment has been changing.
"At the same time, we are here now getting different signals, like the whole speech of Xi Jinping or yesterday's presentation by Li Keqiang saying that they were in favor of free trade, saying that they would go for a level playing field," Clauss added.
"They've been saying all the right things and now we just hope that they will walk the talk."
Over the weekend, Li Keqiang pledged to oppose protectionism and continue to liberalize trade.
That echoed comments from Xi Jinping in a speech at the World Economic Forum in Davos in January, which defended globalization and free trade and argued in favor of a level playing field.
Those remarks came after U.S. President Donald Trump vowed during his campaign to label the country a currency manipulator for the purposes of a competitive trade advantage on his first day in office and threatened to impose a tariff of as much as 45 percent on China's exports to the U.S.
More recently, Trump's administration and the Republican Congress have been considering imposing a border tax on imports into the U.S.
"What I can see here from Beijing is the Chinese side believes there will be more trade frictions, maybe even a trade war, which would be a problem for China," he said.
"I don't think it will be a major problem for German companies here in China since those that produce here in China, produce and manufacture almost exclusively for the Chinese market and not for exports abroad."
Data last month showed that China had become Germany's largest trading partner for the first time in 2016, media reports said, with trade volume between the two rising 4 percent to around 170 billion euros.
That displaced the U.S. from first place to third, but left France as No.2, reports said.

President Trump Accuses Chinese of Being Grand Champions of Currency Manipulation

President Trump frequently accused China of keeping its currency artificially low against the dollar to make Chinese exports cheaper, stealing American manufacturing jobs.
By Reuters

President Donald Trump declared China the "grand champions" of currency manipulation on Thursday, just hours after his new Treasury secretary pledged a more methodical approach to analyzing Beijing's foreign exchange practices.
In an exclusive interview with Reuters, Trump said he has not "held back" in his assessment that China manipulates its yuan currency, despite not acting on a campaign promise to declare it a currency manipulator on his first day in office.
"Well they, I think they're grand champions at manipulation of currency. So I haven't held back," Trump said. 

"We'll see what happens."
During his presidential campaign Trump frequently accused China of keeping its currency artificially low against the dollar to make Chinese exports cheaper, stealing American manufacturing jobs.
But Treasury Secretary Stephen Mnuchin told CNBC on Thursday he was not ready to pass judgment on China's currency practices.
Asked if the U.S. Treasury was planning to name China a currency manipulator any time soon, Mnuchin said he would follow its normal process of analyzing the currency practices of major U.S. trading partners.
The Treasury is required to publish a report on these practices on April 15 and Oct. 15 each year.
"We have a process within Treasury where we go through and look at currency manipulation across the board. We'll go through that process. We'll do that as we have in the past," Mnuchin said in his first televised interview since formally taking over the department last week. "We're not making any judgments until we go continue that process."
A formal declaration that China or any other country manipulates its currency requires the U.S. Treasury to seek negotiations to resolve the situation, a process that could end in punitive tariffs on the offender's goods.
The U.S. Treasury designated Taiwan and South Korea as currency manipulators in 1988, the year that Congress enacted the currency review law. 

China was the last country to get the designation, in 1994.
The current situation is complicated because China's central bank has spent billions of dollars in foreign exchange reserves in the past year to prop up the yuan to counter capital outflows.

Trump's pronouncements about the yuan could also complicate matters for Mnuchin as he prepares for his first meeting next month with his Group of 20 finance minister counterparts in Baden Baden, Germany.

Trump Seen Having Support If He Dubs China Yuan Manipulator

Graham, Shaheen cite bipartisan backing for declaration on FX

By Patrick Donahue

President Donald Trump would have the support of Congress if he declared China a currency manipulator, as he pledged during the election campaign, according to two members of the Senate Foreign Relations Committee.
Senator Lindsey Graham of South Carolina, a Republican, said on a panel at the Munich Security Conference on Sunday that the Republican-led Congress has an opportunity to unite around action against China.

Lindsey Graham

“There’s bipartisan support to declare China a currency manipulator,” said Graham, whose stance was backed by Jeanne Shaheen, a Democrat from New Hampshire. 

“I don’t want a war with China; I want a better relationship. But what they’re doing needs to be pushed back against -- and I think currency manipulation will be an issue that may unite the Congress.”
While the U.S. has long accused China of undervaluing its currency to boost exports, Beijing has actually been burning through foreign reserves to support the yuan amid an economic slowdown and capital outflows. 

The yuan gained 0.9 percent against the dollar in January, its steepest advance since March, after sinking 13 percent in the three years through 2016. 

The currency was little changed on Monday at 6.8671 per dollar.
Trump, who pilloried China on the campaign trail for its trade practices, has the power to brand the country a currency manipulator and doesn’t need Congressional support.
In spite of vowing throughout the campaign that he would do that on his first day in office, Trump has yet to act one month into his presidency.
Steven Mnuchin, who was sworn in on Feb. 13 as Treasury secretary and would play a key role in any decision about China’s foreign-exchange policies, said during his Senate confirmation process that he’s willing to label the country a manipulator if warranted.
Trump this month also recommitted the U.S. to the “One China” policy that’s underpinned U.S. relations since the 1970s, backing off a threat made before his inauguration in January to abandon a stance that acknowledges that China and Taiwan are part of the same country.
“I’m not clear yet what the policy is of this administration on China,” Shaheen said. 

“I think a One China policy is very important. I agree that it’s a currency manipulator and I think there’s probably bipartisan agreement in Congress on that.”
The U.S. last singled out China for unduly influencing its currency in 1994, when Democrat Bill Clinton was president. 

Successive U.S. leaders since then -- both Democrat and Republican -- have refrained for taking such a step, in spite of sporadic pressure from lawmakers to do so.

Trump's promises before and after the election

Schumer: If Trump wants to put America first he should label China a 'currency manipulator'
By Elena Holodny and Reuters
U.S. Senator Schumer speaks after the cloture vote on the nomination of Lynch to be Attorney General, in Washington

Senator Chuck Schumer, the top Democrat in the US Senate, urged President Donald Trump on Tuesday to implement one of his campaign promises and declare China a currency manipulator.
"Mr. President: if you really want to put America first, label China a currency manipulator," Schumer told reporters.
Trump's Treasury secretary nominee Steven Mnuchin recently told senators that he would work to combat currency manipulation but would not give a clear answer on whether he currently views China as manipulating its yuan, according to a Senate Finance Committee document seen by Reuters on Monday.
Trump previously said that he would name China a currency manipulator on his first day in office.
Notably, there are three criteria that must be met for a country to be labeled a currency manipulator by the Treasury Department:

1. The country must have a significant bilateral trade surplus with the US.
2. The country has a "material" currency account surplus.
3. The country is engaged in persistent one-sided intervention in the foreign exchange market.

In their semi-annual April report, the Treasury created a "Monitoring List" of major trading partners that "merit attention based on an analysis of the three criteria." 

China was among those added to the list.
Once a country is added to the list, it is kept on there for at least two consecutive reports.
That being said, the Treasury noted that while China met two out of the three criteria in the April report (a large bilateral trade surplus and a current account surplus above 3%), it met only one of the three criteria in the October report (the large bilateral trade surplus.)
The major trading partners included on the list as of the October 2016 report are China, Japan, Korea, Taiwan, Germany, and Switzerland.
The last time the US designated China a currency manipulator was from 1992 to 1994.

"He's promised to label China a currency manipulator on his first day in office. We're still waiting." -- Chuck Schumer

Schumer presses Trump to label China a currency manipulator
By BURGESS EVERETT

"He's promised to label China a currency manipulator on his first day in office. We're still waiting. Last night at the White House I mentioned this to the president. He didn't say no," Chuck Schumer said. 

Chuck Schumer desperately wants to know whether Donald Trump will label China a currency manipulator, as he promised to do during the campaign.
The Senate minority leader said Tuesday that he challenged the new president about his promise to crack down on China on his first day in office, which Trump did not do despite previous campaign pledges. 

But Schumer (D-N.Y.) also said that Trump didn't rule out doing so. 

"He's promised to label China a currency manipulator on his first day in office. We're still waiting. Last night at the White House I mentioned this to the president. He didn't say no," Schumer said on the Senate floor. 

"I'm not going to say what he said. He didn't say no. Maybe he'll do it. I hope and pray he does."

A group of senators in both parties, including Trump's attorney general nominee Sen. Jeff Sessions (R-Ala.), have long pressed the United States to label China a currency manipulator. 

In the past, the Chinese government made its currency artificially low, though the country has backed off that stance in recent years.
But Democrats are looking to hold Trump to his campaign pledges. 

And on the issue of trade with China, it's one place where party leaders agree with how Trump campaigned.
"We were opposed frankly by both President Bush and President Obama. And now we have President Trump," Schumer said. 

"We await real action on trade."

President Trump's trade policies could make things much worse for debt-ridden China

By Evelyn Cheng

If trade frictions increase between the U.S. and China that could have significant fallout for China as it struggles with debt, and weigh on the global economy.
President Donald Trump has threatened to take a tougher stance — including imposing tariffs and labeling China a currency manipulator.
Meanwhile, with China's Communist Party congress set to meet this fall, the country's "leadership cannot afford to be perceived as weak," said David Cui, head of China equity strategy at Bank of America Merrill Lynch.
"That's why the market has grossly underestimated trade frictions," Cui said, speaking on a call with reporters late Tuesday.
China was the biggest source of goods imported to the U.S. in 2015, according to the Office of the U.S. Trade Representative.
If the U.S. trade deficit — $367 billion in 2015 — with China is cut by a third, Cui estimates the Asian giant's GDP growth could be hurt by 1 to 2 percent.
In the last decade, China's annual GDP growth fell from double digits to a 25-year low of 6.9 percent in 2015. 

Many China watchers say slower expansion is inevitable as China shifts from a debt-fueled manufacturing-driven economy to one driven by domestic consumption.
But concerns about negative spillover from a sharp slowdown in China's economy have roiled global markets. 

China is scheduled to report fourth-quarter 2016 GDP on Friday.
Meanwhile, China's debt problems appear to be getting worse. 

Cui's analysis found that the country's debt-to-GDP ratio should increase in the near future, potentially at a faster rate.

And in the mainland Class A share market, Cui estimates that leverage jumped from 15 percent of market capitalization in the middle of 2015 to 22 percent in the third quarter of last year.
"If we look at top down the major drivers of bad debt, increasing overcapacity, leverage, all the major drivers seem to be far more than the last round," Cui said.
In July 2015, the Shanghai composite dropped more than 40 percent from a seven-year high as traders, who had borrowed heavily to buy stocks, rushed to sell to meet those loan obligations.
That time, the Chinese government had to step in as a buyer to support the market, but the extreme volatility was followed by a sharp depreciation in the Chinese yuan versus the dollar, sending U.S. stocks down more than 10 percent that summer.
Potential economic pressure from a tougher U.S. stance on China could come soon. 

Trump takes office Friday and has already selected outspoken China critics for key positions on trade, including Peter Navarro, author of "Death by China," for the head of a newly formed National Trade Council.
"There will be more trade frictions between the two countries," Cui said.
Because of Trump's policymaker picks, "it's very difficult to see ... that the Trump administration doesn't do anything," Cui said. 

"Because of the political dynamic in China leading up to the 19th National Congress, [they will] not back down easily."
The American Chamber of Commerce in the People's Republic of China found in its annual survey of about 500 of its member companies that one-third expect U.S-China relations to deteriorate this year, while half expect the relationship to remain the same. 

More than 40 percent said they would slow their investment in China due to factors such as market access barriers and uncertainty around business policy.
Adding further uncertainty to U.S.-China relations, Trump has challenged the "One China" policy in which the U.S. sees Taiwan as a province of China.
"I think this is one of the red lines for the Chinese," Cui said. 

They're "unwilling to compromise on that. It's possible in other areas."
While Cui expects Beijing to take a tit-for-tat reaction to any U.S. policies, Xi Jinping said in a high-profile speech Tuesday at the World Economic Forum in Davos, Switzerland, that "no one will emerge as a winner in a trade war."
Xi is expected to use the fall congress to consolidate his national power. 

Meanwhile, Beijing has said controlling asset bubbles is a priority.
Local Chinese financial market volatility has picked up in the last few weeks. 

Already, the Chinese yuan has hit more than eight-year lows versus the dollar, while China's 10-year bond yield last month jumped its highest in more than a year.
The "sharp correction in December with some moderate tightening by the PBOC [China's central bank] shows how leveraged" the bond market is, Cui said.
All the volatility in markets and international policy means China could once again rock U.S. markets this year.
"Labeling China a currency manipulator, [Trump] can't do those yet," said David Lafferty, chief market strategist at Natixis Global Asset Management.
"Right now we're not seeing the spillover effect into our markets, but I would expect those to ramp up once he's in control," Lafferty said.

American Chamber of Commerce in China: "Chinese protectionism fuelling foreign business pessimism"

More companies are slowing investments and deprioritising China as an investment destination due to slowing growth and increased concerns over barriers to market entry, the regulatory environment, and rising costs

By Michael Martina

BEIJING -- More than 80 percent of members of a U.S. business lobby in China say foreign companies are less welcome than in the past, a survey released on Wednesday showed, with most saying they have little confidence in China's vows to open its markets.
The American Chamber of Commerce in China's annual survey reinforces growing pessimism in the foreign business community, as it grapples with a slowing Chinese economy and complains of increasing protectionism.
The chamber's report comes a day after  Xi Jinping gave a speech at the World Economic Forum (WEF) championing open markets, and Beijing unveiled proposals to reduce restrictions on foreign investment in China.
Business circles are particularly concerned over the future of U.S.-China commercial ties as President Donald Trump prepares to take office, having pledged to brand China a currency manipulator and threatened to impose tariffs on its goods.
"More companies are slowing investments and deprioritising China as an investment destination due to slowing growth and increased concerns over barriers to market entry, the regulatory environment, and rising costs," the chamber said.
If China took action, including removing "discriminatory barriers" to foreign-invested companies and investment restrictions, the chamber's members would "significantly increase investment", it said.
The share of companies that identified China as a top three global investment priority dropped to 56 percent this year, compared with a peak of 78 percent in 2012, the chamber said, calling it a record low.
Eighty-one percent of the 462 companies included in the survey, among them U.S. and multinational firms, said foreign business was less welcome in China than in the past, up from 77 percent in 2016.
Foreign businesses in China, as well as foreign governments, have long complained about a lack of market access in China and restrictive policies that run counter to its pledges to free up markets.
Though Eleven's speech at the WEF in Davos painted a picture of China as a "wide open" economy, more than 60 percent of the chamber's members had "little or no confidence that the government is committed to opening China's markets further in the next three years".
Respondents estimated on average that China's economic growth for 2017 would be 6.1 percent, below what sources have told Reuters would be a government target of around 6.5 percent.
The survey, with responses compiled both during and after Trump's November election victory, showed 72 percent of members felt that positive U.S.-China relations were "critical" to business, but only 17 percent thought they would improve in 2017.
Chamber chairman William Zarit said some of its members would go to Washington in early February, months ahead of an annual lobbying trip, to engage with the Trump administration.
"We certainly are not going there to lecture the administration, but we are there to share our ideas on ... a more constructive path forward," Zarit said at a briefing on the survey.
China has warned that it will be tough for its foreign trade to improve this year, especially if a Trump administration and other political changes limit export growth.

The just war: Donald Trump is right to take action against China

Using the rules of the World Trade Organisation to combat Chinese mercantilism is not protectionism

By David Green

It’s a mistake to think of Donald Trump as a protectionist, as Boris Johnson will have discovered during his recent visit to New York.

Theresa May has said that some protectionist instincts are starting to creep in and that the UK should be a champion of free trade. 

Her remarks are widely interpreted as a reference to policies planned by Donald Trump, but his plans can just as easily be seen as a defence of a rules-based international trading system. 

One of the 28 pledges made in his Contract with the American Voter was to ‘identify all foreign trading abuses that unfairly impact American workers’ and to use ‘every tool under American and international law to end those abuses immediately’. 

Using the rules of the World Trade Organisation (WTO) to combat Chinese mercantilism is not protectionism. 

Nor is his promise to declare China a currency manipulator on his first day in office.
Free trade is defended because it can be mutually beneficial but, rather like toleration, it only works if everyone plays by the same rules. 
Toleration of aggressively intolerant groups gives them an advantage.
In the same way, free trade only makes everyone eventually better off if we are all looking for mutual benefits.
The outcome will not be beneficial to everyone if one nation treats trade as a kind of substitute for war and aims to gain advantage at the expense of others in order to achieve economic and military superiority. 
Historically this attitude was called mercantilism.
Is it correct to describe China as mercantilist?
Economists argue that prosperity comes from a combination of the division of labour and trade between independent firms.
They claim the same for the international division of labour, but often forget the preconditions for their model to work.
Companies must be genuinely independent, which means they must make ends meet and so must be efficient to survive.
Competition encourages a search for efficiency.
Some argue that world prices are the measure of efficiency but this claim ignores today’s realities. Often world prices are not market prices and this is especially true of Chinese export prices.
China manipulates its currency by forcing exporters to save their US dollars in the form of Chinese government bonds denominated in dollars. 
The dollars are used to buy US Treasury bonds and other US assets, thus pushing up the exchange rate of the dollar. 
China prevents the free negotiation of wages; indeed it represses trade unions. 
Its companies do not meet international accounting standards, which are designed to promote transparency. 
It subsidises exports, contrary to WTO rules, and it imposes import tariffs contrary to WTO rules. 
It has weak environmental regulations, thus reducing its costs. 
It has weak health and safety laws that, despite their inadequacy, are frequently not enforced. 
It has state owned companies that subsidise exports, directly and indirectly. 
It has state owned banks that provide undisclosed subsidies. 
Its government offers land at low undisclosed rents. 
Private companies are not genuinely private, but require a political patron to survive.
The aim of the system is to bolster the power of the Communist party, a brutal authoritarian dictatorship. 
This is the exact opposite of America, where private wealth helps to empower opposition to the government of the day.
For example, Jeff Bezos, the founder of Amazon, recently bought the Washington Post newspaper, which campaigned against Donald Trump.
If he had tried to do the same thing in China he would be lucky to still be alive.
There is not the slightest chance in China of building up a media group to criticise the government, let alone to create a viable government in waiting.
It’s true that money can be used in America to cajole public opinion and ‘buy’ votes, but not just for one party.
In the West, wealth upholds freedom and democracy.
China is not a free society. The more economically powerful it gets the more it threatens the free world. If its firms are not state owned they are state dominated.
There is no genuine private ownership; there is state authorised discretion.
The aim of economic activity is to keep power in the hands of the Communist party. 
There are no checks and balances.
The more we promote Chinese prosperity at our own expense the more we endanger liberty itself.
Currency manipulation is a longstanding problem. 
Keynes warned of the dangers during the long negotiations leading up to the Bretton Woods agreement at end of World War Two. 
His warnings were ignored and by the 1980s there was strong concern about Japanese currency manipulation.
In 1985, under the Plaza Accord, measures were taken to force up the price of the yen.
Today it’s China that is getting away with it and action is long overdue. 
No one who advocates free trade should ignore this problem. 
Some economists talk as if world prices are the result of competition between independent organisations in a rules based system, when they are not.
Calling for free trade while ignoring economic realities is like calling for deregulation of financial services before 2008. 
It’s what led to the 2008 crash.
The problem is not just low-wage competition.
Chinese cheating also takes market share from low-wage countries. 
Today the problem we face in the West is not competition from low-wage economies but mercantilism, and the challenge is how to make a reality of the rules-based order we have.
That is what we should champion.
Not the pretence that all we need to do is eliminate barriers.
It is misleading to portray free trade and protection as the only two alternatives.
The top priority is to act against nations with long-standing trade surpluses that are the result of mercantilist manipulation.
The UK’s policy towards China is an economic and political blunder.
Theresa May has been talking about a ‘golden era’ for China-UK relations and has promoted investment by Chinese companies in the UK as if it were like any other inward investment.
The reality is that no company in China is genuinely private. 
Any chief executive who fails to comply with the wishes of the Communist party will soon find the secret police calling. 
Any significant private organisation in China can only function with a political patron. 
Letting Chinese companies take over UK businesses is like letting the Chinese government take them over. 
We don’t want our own Government to nationalise our companies, because we fear the abuse of power, and yet we stand by and clap our hands when the Chinese government takes them over. 
Even Germany has become alarmed at the extent to which China is taking over its famous Mittelstand of high-tech world-beating companies.
The German government recently stopped the takeover of the technology company Aixtron, when it looked as if one Chinese company cancelled an order, which pushed down the share price of the German supplier, so that a second Chinese company could buy Aixtron for less.
The German economics ministry has warned that in 70 per cent of the twenty largest recent takeovers, the purchasing Chinese company was majority-owned by the Chinese government.
The Government showed awareness of the dangers when it suspended the decision on the Hinkley Point nuclear reactor, but its determination lasted about five minutes.
We should now stand shoulder to shoulder with the Americans to uphold the rules-based system of international trade and act against currency manipulation.

Sina Delenda Est

With Choice of Trade Negotiator, Trump Prepares to Confront China
By BINYAMIN APPELBAUM

Robert Lighthizer is Donald J. Trump’s pick to become the United States’ trade representative.

WASHINGTON — President Donald J. Trump on Tuesday named as his chief trade negotiator a Washington lawyer who has long advocated protectionist policies, the latest sign that Mr. Trump intends to fulfill his campaign promise to get tough with China, Mexico and other trading partners.
Mr. Trump also renewed his episodic campaign to persuade American companies to expand domestic manufacturing, criticizing General Motors via Twitter on Tuesday morning for making in Mexico some of the Chevrolet Cruze hatchbacks it sells domestically. 

Hours later, Mr. Trump claimed credit after Ford said it would expand vehicle production in Flat Rock, Mich.
The choice of Robert Lighthizer to be the United States’ trade representative nearly completes Mr. Trump’s selection of top economic advisers and, taken together with the president's running commentary on Twitter, underscores Mr. Trump’s focus on making things in America. 

That is causing unease among some Republicans who regard Mr. Trump’s views on trade as retrograde, even as they embrace the bulk of his economic agenda.

But some Democrats are signaling a readiness to support Mr. Trump. 

Nine House Democrats held a news conference Tuesday with the A.F.L.-C.I.O. president, Richard Trumka, to urge renegotiation of the North American Free Trade Agreement with Mexico and Canada.
“We wanted him to know that we’ll work with him on doing that,” Mr. Trumka said. 

“I don’t think he has enough Republican support to do it, and rewriting the rules of trade is a necessary first step in righting the economy for working people.”
Mr. Trump and his top advisers on trade, including Mr. Lighthizer, share a view that the United States in recent decades prioritized the ideal of free trade over its own self-interest. 

They argue that other countries are undermining America’s industrial base by subsidizing their own export industries while impeding American importers. 

They regard this unfair competition as a key reason for the lackluster growth of the economy.
In picking Mr. Lighthizer, who has spent much of the last few decades representing American steel producers in their frequent litigation of trade disputes, Mr. Trump is seeking to hire one of Washington’s top trade lawyers to enforce international trade agreements more vigorously. 

He must be confirmed by the Senate.
“He will do an amazing job helping turn around the failed trade policies which have robbed so many Americans of prosperity,” Mr. Trump said in a statement.
Mainstream Republicans have sought common ground with Mr. Trump, emphasizing, for example, the importance of enforcing trade rules, but they have not abandoned the party’s longtime advocacy for trade. 

Senator Orrin Hatch of Utah, the chairman of the Senate Finance Committee, which will hold hearings on Mr. Lighthizer’s nomination, issued a cautiously supportive statement Tuesday.
“As the world and our economic competitors move to expand their global footprints, we can’t afford to be left behind in securing strong deals that will increase our access to new markets for American-made products and services,” Mr. Hatch said in a statement. 

“I look forward to a vigorous discussion of Bob’s trade philosophy and priorities.”
Mr. Trump has named a number of advisers on trade, leaving some ambiguity about the division of responsibilities. 

The president-elect named the economist Peter Navarro, an outspoken critic of China, to lead a new White House office overseeing trade and industrial policy. 

Mr. Trump also said Wilbur Ross, the billionaire investor and choice for commerce secretary, will play a key role. 

Mr. Lighthizer, however, is the only member of the triumvirate with government experience.
“Those who say U.S.T.R. will be subordinated to other agencies are mistaken,” said Alan Wolff, another former senior American trade official who was the steel industry’s co-counsel on trade with Mr. Lighthizer for nearly 20 years, citing Mr. Lighthizer’s encyclopedic knowledge of trade law. “He’ll be a dominant figure on trade, in harmony with Wilbur Ross and Navarro.”
There is also an ideological divide between the people Mr. Trump has named to oversee trade policy and his broader circle of advisers, which is populated by longstanding trade advocates like Gary D. Cohn, the president of Goldman Sachs, who will lead the National Economic Council; Rex W. Tillerson, the chief executive of Exxon Mobil, tapped for secretary of state; and Gov. Terry Branstad of Iowa, Mr. Trump’s choice for ambassador to China.
Proponents of trade hope the broader circle, and congressional Republicans, will exert a moderating influence.
“You’re seeing a pretty clear indication that there will be a focus on the enforcement of our trade agreements and on the letter of the law,” said Scott Lincicome, an international trade lawyer at White & Case. 

“But that doesn’t necessarily mean a significant turn toward protectionism. Even free trade guys like me support enforcement.”
Trade opponents on the left and the right, meanwhile, are hoping Mr. Trump means to break with several decades of pro-trade policy.
“There’s going to be a war within the Trump administration on where they go with trade, and we’re hoping to energize the worker base he had to make sure they go in the right direction to benefit the American worker,” Mr. Trumka said.
Mr. Trump’s promise to immediately designate China as a currency manipulator may offer an early test of the administration’s intentions. 

Mr. Lincicome said officially labeling China a currency manipulator would signal that the administration is taking a hard line on trade issues.

A broader shift in trade policy would unfold more slowly. 

Mr. Trump has promised to renegotiate Nafta; the original process took most of three years. 

He has promised to pursue enforcement actions against other nations, but it takes time to mount cases. 

He has threatened to impose new tariffs on imports, but sweeping changes most likely would require congressional legislation.
Mr. Trump already is seeking to exert influence by seizing the presidential bullhorn.
“General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border,” he wrote Tuesday on Twitter. 

“Make in U.S.A. or pay big border tax!”
General Motors announced in 2015 that it would make the Cruze in Coahuila, Mexico. 

American manufacturers are moving small-car production to Mexico to take advantage of lower labor costs and because of declining domestic demand. 

They continue to build more expensive vehicles in the United States.
Ford’s announcement Tuesday does not reverse that trend. 

The carmaker said it still planned to move production of the compact Ford Focus from Michigan to Mexico. 

But it said it would invest in a different Michigan plant to expand production of higher-priced vehicles, including its F-150 pickup truck and the Mustang sports car, as well as a new battery-powered sport utility vehicle.
“We are encouraged by the pro-growth policies that President Trump and the new Congress have indicated they will pursue,” said the company’s chief executive, Mark Fields.
Mr. Lighthizer served as deputy United States trade representative in the Ronald Reagan administration, when he was involved in pressing Japan to reduce its restrictions on American imports and its subsidies for its own exports. 

Mr. Trump has criticized China for similar practices, setting the stage for a new round of confrontations.
Reagan is often remembered as an advocate for free trade, but his administration in its early hours imposed a quota on Japanese auto imports. 

It was the first in a long series of measures aimed at putting pressure on the nation that was then regarded, like China in recent years, as a threat to American prosperity.
“President Reagan’s pragmatism contrasted strongly with the utopian dreams of free traders,” Mr. Lighthizer wrote in a 2008 piece criticizing Senator John McCain, Republican of Arizona, for embracing “unbridled” free trade. 

Conservatives, he argued, “always understood that trade policy was merely a tool for building a strong and independent country with a prosperous middle class.”

Trump must prepare for a showdown with China

President Trump must prepare for a diplomatic and military showdown in the Pacific and to confront Beijing on the massive trade imbalance that finances Chinese mercantilism and adventurism.

By Peter Morici 

President Donald Trump and Vice President Mike Pence pause for photographs as they arrive at the Trump National Golf Club Bedminster clubhouse in Bedminster, N.J., Saturday, Nov. 19, 2016.

President Donald Trump faces immediate challenges: managing the war against ISIS, fixing ObamaCare and boosting growth to create jobs. 

But as the fallout from his recent conversation with the president of Taiwan indicates, an increasingly assertive China poses the most vexing and far-reaching challenges for American prosperity and security.
China has accomplished hyper growth supplying Western consumers with inexpensive goods and attracting Western investment to obtain necessary technology, but it has hardly played by the established rules and norms of global trade. 

It has subsidized exports, manipulated its currency and engaged in other abusive practices.
Trump has promised to slap a 45 percent tariff on Chinese imports to get a better deal through existing international agreements, echoing a strategy advocated by Mitt Romney.
The $320 billion annual deficit on trade in goods and services with China depresses demand for American-made products, curtails funding for U.S.-based R&D, kills millions of jobs and is a principal cause of the blight in communities like Reading, Pa., and Hickory, N.C.
Just as menacing are the trillions of dollars in cumulative trade surpluses China has amassed that are financing a dramatic pivot in its industrial, military and foreign policies, threatening security in the Pacific and America’s standing with allies around the globe.
As wages rise in Chinese coastal manufacturing centers, jobs move farther west in China and elsewhere in Southeast Asia, causing major social disruptions. 

For example, Dongguan, near Hong Kong, has endured job losses on a scale similar to large Midwestern cities in the U.S.
To buffer job losses and limit political unrest, Beijing is pursuing a two-pronged strategy.
It is imposing tougher restrictions on foreign investment, which further depresses the value of the yuan, ladles on more subsidies for basic manufacturing, tightens administration restrictions on imports and consolidates state-owned enterprises to enhance their monopoly power.
Simultaneously, it is encouraging more technology-intensive activities that strike at the heart of American and European competitiveness through lavish subsidies for startups, acquisitions of U.S. and European businesses and toughened regulation of American and other foreign technology companies operating in China. 

In the process, many products and components used by its basic assembly and fabrication operations, once sourced in the United States and western Europe, are now made in China.
Most of those tactics either violate World Trade Organization rules or are decidedly asymmetrical. For example, the United States, Germany and other European nations generally permit the Chinese to purchase companies outright, whereas Western investors must offer Chinese joint-venture partners a substantial stake when establishing subsidiaries in the Middle Kingdom.
While Chinese technology still lags behind Western capabilities in many complex and mundane areas, such as rice cookers, it has managed to leap ahead in some fields — for example, satellite technology for espionage-proof and encrypted communications.
In addition, the cash earned from its huge trade surpluses is financing a massive buildup in naval and air power, militarization of the South China Sea and about 20 port facilities the Chinese navy can access in Asia, Africa, the Middle East and Europe. 

It also has established an Asian International Development Bank, and the Chinese government and private investors are plowing billions of dollars into the economies in Asia and Africa through infrastructure projects and direct investment.
Obama has been hesitant to take the advice of U.S. defense leaders in challenging China’s artificial islands and militarization of the vital South China Sea, and the combination of Chinese muscle and billions in new investment has encouraged the Philippines and Malaysia, longtime U.S. allies, to tilt toward Beijing.
The latter substantially undermines the U.S. strategy of resolving sovereignty disputes in the South China Sea and securing the sea lanes from Chinese control by relying on the recent U.N. tribunal ruling denying Beijing’s claims and through U.S. military and diplomatic cooperation with regional allies.
The South China Sea has huge seabed mineral deposits and is a vital passage for some $5 trillion of international shipping annually. 

Open access has been secured by the U.S. Navy in cooperation with regional allies since World War II, and the stability of that framework is vital — not merely to global commerce, but also to U.S. credibility with strategic allies in the Middle East and Europe.
President Trump must prepare for a diplomatic and military showdown in the Pacific and to confront Beijing on the massive trade imbalance that finances Chinese mercantilism and adventurism.
American prosperity and security depend on it.

Trump Speaks With Taiwan’s Leader

Donald Trump is the first U.S. president who has spoken to a Taiwanese leader since 1979

By MARK LANDLER and DAVID E. SANGER

President Donald J. Trump at the Carrier plant in Indianapolis on Thursday.

WASHINGTON — President-elect Donald J. Trump spoke by telephone with Taiwan’s president on Friday, a striking break with nearly four decades of diplomatic practice that could precipitate a major rift with China even before Mr. Trump takes office.
Mr. Trump’s office said he had spoken with the Taiwanese president, Tsai Ing-wen, “who offered her congratulations.” 

He is the first president who has spoken to a Taiwanese leader since 1979, when the United States severed diplomatic ties with Taiwan as part of its recognition of the People’s Republic of China.
In the statement, Mr. Trump’s office said the two leaders had noted “the close economic, political, and security ties” between Taiwan and the United States. 

Mr. Trump, it said, “also congratulated President Tsai on becoming President of Taiwan earlier this year.”
Mr. Trump’s motives in taking the call, which lasted more than 10 minutes, were not clear. 

In a Twitter message late Friday, he said Ms. Tsai “CALLED ME.”
But diplomats with ties to Taiwan said it was highly unlikely that the Taiwanese leader would have made the call without arranging it in advance. 

Ms. Tsai’s office confirmed that it had taken place, saying the two had discussed promoting economic development and “strengthening defense.” 

Taiwan’s Central News Agency hailed the call as “historic.”
The president has shown little heed for the nuances of international diplomacy, holding a series of unscripted phone calls to foreign leaders that have roiled sensitive relationships with Britain, India and Pakistan. 

On Thursday, the White House urged Mr. Trump to use experts from the State Department to prepare him for these exchanges.
The White House was not told about Mr. Trump’s call until after it happened, according to a senior administration official. 

But afterward, the Chinese government contacted the White House to discuss the matter.

President Tsai Ing-wen 

The longer-term fallout from the Trump-Tsai conversation could be significant, the administration official said, noting that the Chinese government issued a bitter protest after the United States sold weapons to Taiwan as part of a well-established arms agreement grudgingly accepted by Beijing.
Mr. Trump’s call with President Tsai is a bigger provocation. 

Beijing views Taiwan as a breakaway province and has adamantly opposed the attempts of any country to carry on official relations with it.
On Nov. 14, Mr. Trump spoke with Xi Jinping and a statement from the transition team said the two men had a “clear sense of mutual respect.”
Initial reaction from China about Friday’s telephone call was surprise verging on disbelief. 

“This is a big event, the first challenge the president has made to China,” said Shi Yinhong, professor of international relations at Renmin University in Beijing. 

“This must be bad news for the Chinese leadership.”
Official state-run media have portrayed Mr. Trump in a positive light, casting him as a businessman China could get along with. 

He was favored among Chinese commentators during the election over Hillary Clinton, who was perceived as being too hard on China.
Mr. Trump’s exchange touched “the most sensitive spot” for China’s foreign policy, Mr. Shi said. 

The government, he said, would most likely interpret it as encouraging Ms. Tsai, the leader of the party that favors independence from the mainland, to continue to resist pressure from Beijing.
Among diplomats in the United States, there was similar shock. 

“This is a change of historic proportions,” said Evan S. Medeiros, a former senior director of Asian affairs in the Obama administration. 

In a second Twitter message about the call Friday night, Mr. Trump said, “Interesting how the U.S. sells Taiwan billions of dollars of military equipment but I should not accept a congratulatory call.”
Ties between the United States and Taiwan are currently managed through quasi-official institutions. The American Institute in Taiwan issues visas and provides other basic consular services, and Taiwan has an equivalent institution with offices in several cities in the United States.
These arrangements are the outgrowth of the One China policy that has governed relations between the United States and China since President Richard M. Nixon’s historic meeting with Mao Zedong in Beijing in 1972. 

In 1978, President Jimmy Carter formally recognized Beijing as the sole government of China, abrogating its ties with Taipei a year later.
The call also raised questions of conflicts of interest.
Newspapers in Taiwan reported last month that a Trump Organization representative had visited the country, expressing interest in perhaps developing a hotel project adjacent to Taiwan Taoyuan International Airport, which is undergoing a major expansion. 

The mayor of Taoyuan, Cheng Wen-tsan, was quoted as confirming that visit.
A spokeswoman for the Trump Organization, Amanda Miller, said that the company had “no plans for expansion into Taiwan,” and that there had been no “authorized visits” to the country to push a Trump development project. 

But Ms. Miller did not dispute that Anne-Marie Donoghue, a sales manager overseeing Asia for Trump Hotels, had visited Taiwan in October, a trip that Ms. Donoghue recorded on her Facebook page.
Ms. Donoghue did not respond to requests for comment.
Mr. Trump’s call with the Taiwanese president came just as Obama delivered a more subtle, but also aggressive, rebuff of China: He blocked, by executive order, an effort by Chinese investors to buy a semiconductor production firm called Aixtron.
Mr. Obama took the action on national security grounds, after an intelligence review concluded that the technology could be used for “military applications” and help provide an “overall technical body of knowledge and experience” to the Chinese.
The decision is likely to accelerate tension with Beijing, as Chinese authorities make it extraordinarily difficult for American technology companies, including Google and Facebook, to gain access to the Chinese market, and Washington seeks to slow China’s acquisition of critical technology.
Mr. Trump has made little effort to avoid antagonizing China. 

He has characterized climate change as a “Chinese hoax,” designed to undermine the American economy. 

He has said China’s manipulation of its currency deepened a trade deficit with the United States. And he has threatened to impose a 45 percent tariff on Chinese goods, a proposal that critics said would set off a trade war.
By happenstance, just hours before Mr. Trump’s conversation with Ms. Tsai, Henry A. Kissinger, the former secretary of state who designed the “One China” policy, was in Beijing meeting with Xi Jinping. 

It was unclear if Kissinger, 93, was carrying any message from Mr. Trump, with whom he met again recently in his role as the Republican Party’s foreign policy sage.
“The presidential election has taken place in the United States and we are now in the key moment. We, on the Chinese side, are watching the situation very closely. Now it is in the transition period,” Xi told Mr. Kissinger in front of reporters.

A faction of Republicans has periodically urged a more confrontational approach to Beijing, and many of President George W. Bush’s advisers were pressing such an approach in the first months of his presidency in 2001. 

But the attacks of Sept. 11 defused that move, and Iraq became the No. 1 enemy. 

After that, Bush needed China — for North Korea diplomacy, counterterrorism and as an economic partner — and any movement toward confrontation was quashed.
For his part, Mr. Trump has shown little concern about ruffling feathers in his exchanges with leaders. He also spoke on Friday with the Philippine president, Rodrigo Duterte, who has called Obama a “son of a whore” and been accused of ordering the extrajudicial killings of thousands of suspected drug dealers. 

On Saturday, Duterte said that Mr. Trump had wished him well in his antidrug campaign, though his account could not immediately be verified.

This week, Mr. Trump appeared to accept an invitation from Prime Minister Nawaz Sharif to visit Pakistan, a country that Mr. Obama has steered clear of, largely over tensions between Washington and Islamabad over counterterrorism policy and nuclear proliferation.

Sina Delenda Est

As Trump prepares for office, concerns about China’s unfair trade and investment practices intensify
By Simon Denyer

A Chinese laboorer works at an unauthorized steel factory, foreground, on Nov. 4, 2016, in Inner Mongolia, China. 

BEIJING — Around the world, concerns are mounting about China’s unfair trade and investment practices. 

How Donald Trump responds could have a far-reaching impact on the global economy and financial markets.
Trump has threatened to declare China a currency manipulator, but experts say he has little legal or economic basis to take such a step. 

He has also threatened to impose a tariff of up to 45 percent on Chinese imports if Beijing doesn’t “behave,” a move that could lead to a trade war and damage the economies of both nations.
Yet he is not alone in sounding the alarm about unfair competition and a playing field sharply tilted in China’s favor. 

And there are plenty of options on the table if he wants to show he is tougher than his predecessor.
The American Chamber of Commerce in China, which usually is very measured in any criticism of China, complained this month about a rise in Chinese protectionism and “economic hegemony,” with doors closing to foreign investment, regulations biased against foreign companies, and new national security-related laws breeding “distrust and paranoia.”
The United States “needs to raise its game with the Chinese to drive for a sense of urgency” in dealing with these issues, it said.
But it is not just the treatment of foreign companies in China, and their lack of access to the Chinese market, that has raised tensions.
Chinese companies are also engaged in a state-sponsored buying spree of foreign companies, diplomats and experts say, in sectors identified by the government as key to an industrial modernization strategy known as Made in China 2025.
China has been using the state’s vast financial resources to buy up key foreign innovation and technology, often in sectors where the Chinese economy is largely closed to inward investment.
So as U.S. investment into China slowly declines, Chinese investment into the United States has surged, overtaking money going the other way for the first time in 2015, according to a new report by the Rhodium Group, an economic research consulting firm.
It is a similar story in Europe. 

Trade tensions between China and Germany have ratcheted up this year.
Ambassador Michael Clauss talks of an “unprecedented wave” of complaints by German companies about the problems of doing business here, and a “definite rise in protectionism” — at the same time as China pours billions of dollars into buying German firms, including several of its most innovative high-tech companies.
That has raised deep concerns in Berlin about national security and Germany’s ability to innovate in the future.
“This is not just an American problem,” Clauss said. 

“China has to realize these concerns are real.”
In Washington this month, the U.S.-China Economic and Security Review Commission recommended changing U.S. law to bar state-owned Chinese companies from buying American businesses.
“We don’t want the U.S. government owning large chunks of the U.S. economy, so why do we want the Chinese Communist Party owning large chunks of the U.S. economy?” asked Dennis Shea, the Republican chairman of the bipartisan commission.
So what are Trump’s options?
To judge China a currency manipulator under U.S. law, the Treasury Department would have to determine that it runs a “significant” bilateral trade surplus with the United States, a “material” current account surplus, and is “engaged in persistent one-sided intervention in the foreign exchange market.”
Although China has by far the largest trade surplus with the United States of any country — $356 billion in 2015 — its current account surplus is under 3 percent of gross domestic product, and it has actually been intervening to prop up its currency, not depress its value.
In other words, it met only one of the three criteria last year, the Treasury Department reported. 

“It would be difficult for the new administration to direct the Treasury to say China is a currency manipulator,” said Eric Shimp, a policy adviser at Alston & Bird in Washington, and a former U.S. diplomat and trade negotiator.
Still, Shimp said, a Trump administration could initiate a broader investigation into China’s trade practices and the state subsidies Chinese exporters enjoy.
Across-the-board punitive tariffs are unlikely, not least because they would invite likely Chinese retaliation that could bring down entire industries, experts said. 

But specific measures are possible in specific industries.
In Washington last week, Chinese Vice Premier Wang Yang said that problems in the trade relationship could damage the global economic recovery and that cooperation was “the only right choice.”
Chinese media have warned of canceled orders for Boeing aircraft, depressed iPhone sales and halted corn and soybean imports if a trade war erupted.
Nevertheless, Trump will be looking closely at the steel industry, especially with Dan DiMicco, former chief executive of the steel company Nucor, leading his transition team at the U.S. Trade Representative’s office.
The Obama administration has already imposed heavy anti-dumping and anti-subsidy duties on some types of Chinese steel, but Shimp said broader tariffs on all steel and aluminum imports might be considered under U.S. “global safeguard” rules — if a Trump administration decides that rising imports have caused “serious” economic injury.
“The harm to global industry from China’s excess capacity in steel and aluminum are well known,” said Claire Reade, senior counsel at Arnold & Porter in Washington and former assistant U.S. trade representative for China. 

“If Trump took action to curb this injury, China would not find itself holding the moral high ground in international public opinion. This might temper any reaction.”
Similarly, a blanket ban on investment by Chinese state-owned companies appears unlikely, experts say. 

The Rhodium Group said Chinese firms employ more than 100,000 people in the United States, and experts say there is still an appetite for investment that rescues indebted companies, builds infrastructure and creates jobs.
But experts expect greater scrutiny of who is behind the deals and where the money is coming from.
Trump prides himself on being the consummate dealmaker, and whether his dire warnings were a negotiating tactic remains in question.
“You’ve thrown out the bomb on tariffs, now let’s use that as leverage,” said Christopher Balding, an associate professor at the HSBC Business School in Shenzhen, China.
But there are risks. 

For one, it is far from certain that China will agree to the sort of demands Trump might make: strengthening big state-owned companies is central to its current economic strategy.
The temptation for Trump to show his supporters that he is standing up to China, and Beijing’s desire to stand strong, means that some kind of action-reaction sequence is entirely possible.