BANNON LAYS GROUNDWORK FOR ECONOMIC WAR IN CHINA

The promise Bannon made as a White House adviser may soon become a reality.

BY TINA NGUYEN

“We’re at economic war with China,” Steve Bannon told The American Prospect just days before he left the White House. 

The interview, which presaged his return to Breitbart, appeared to suggest the broad contours of Bannon’s thesis regarding the complex power struggle currently taking place in East Asia. 

China, which shares a 900-mile border with North Korea, accounts for 90 percent of the country’s trade. 

The United States and South Korea, meanwhile, have been close allies since the Korean War. 

The cold war being waged across the DMZ on the Korean Peninsula remains, in may ways, a proxy between the U.S. and the People’s Republic, which have long been engaged in skirmishes over I.P. theft, price undercutting, and job exportation. 

“One of us is going to be a hegemon in 25 or 30 years and it’s gonna be them if we go down this path,” Bannon opined to Robert Kuttner, who days before had compared his boss, Donald Trump, to the “arrogant fool” Kim Jong Un. 

“On Korea, they’re just tapping us along. It’s just a sideshow.”
Donald Trump entered the White House prepared to hold China accountable for what he saw as currency manipulation, among other economic maneuvers. 

But Trump hasn’t quite stood by his harsh rhetoric. 

But Bannon, who is now comfortably outside the confines of the West Wing, appears prepared to turn his anti-China war into reality, enlisting allies from Henry Kissinger to Hong Kong investment banks in his fight against Chinese trade practices. 

In an interview with Bloomberg’s Joshua Green, author of the recent magnum opus Devil’s Bargain, Bannon agreed with the common perception that China’s systematic intellectual-property theft was crippling the U.S. economy. 

“There have been 4,000 years of Chinese diplomatic history, all centered on ‘barbarian management,’ minus the last 150 years,” he told Green. 

“It’s always about making the barbarians a tributary state... Our tribute to China is our technology—that’s what it takes to enter their market, and [they’ve taken] $3.5 trillion worth over the last 10 years. We have to give them the basic essence of American capitalism: our innovation.”
It’s one thing for Bannon to talk up a trade war with China, but it’s another for him to be actively agitating for one. 

Earlier this month, Bannon spoke at a conference in Hong Kong, sponsored by a Chinese bank, in which he called the former British colony “the heart of the economic-nationalist movement [that] is standing up to China.” 

He also took several meetings with Cold War-era figures, including Kissinger, the Nixon-era secretary of state who opened the door to trade with China and has been enjoying lucrative consulting fees pretty much ever since, in which the two discussed the Committee on the Present Danger, a foreign-policy interest group. 

“They understood that you couldn’t do it from inside,” Bannon says. 

“You had to go outside and, like a fire bell in the night, wake up the American people.”
For now, Bannon does not have an ally in the White House, which is currently full of figures like Gary Cohn, Steve Mnuchin, Dina Powell, and other “globalists,” who present as unlikely stewards of Trump’s campaign promises. 

He also doesn’t have much of an ally in the American electorate. 

Bannon hopes that he and his allies can pressure Trump from the outside to keep to his China promises—a similar tactic he’s used in his other political activities, such as backing the populist Roy Moore against the Trump-endorsed Luther Strange in the recent Alabama Senate race. 

Now that Bannon has made his influence known, he told Green that he was ready to keep flexing his newfound political muscle, with the goal of getting populist, hard-line, anti-China candidates into Congress. 

“Every day we are going to be making China a huge part of the ’18 and ’20 elections,” he promised.

Bannon exit provides only temporary relief to China

Bey Ben Bland in Hong Kong

The departure from the White House of Steve Bannon, one of China’s strongest critics within the Trump administration, is likely to provide only temporary relief to Beijing, China foreign policy analysts say.
Mr Bannon warned shortly before he was ousted on Friday that the US and China were locked in an existential battle for domination of the global economy, telling The American Prospect that the US should be “maniacally focused” on that “economic war” with China.
Despite the exit of one of US president Donald Trump’s most outspoken nationalist advisers, the Trump administration went ahead on Friday with the formal launch of an investigation into Chinese intellectual property theft.
The Global Times, a tabloid newspaper that is owned by the People’s Daily, the mouthpiece of the Chinese Communist party, argued in an editorial on Saturday that Mr Bannon’s “toxic legacy” when it comes to China should leave the White House with him.
But analysts argued that any respite would be temporary.
“It may be good for China in the short run but it won’t have a profound impact in the long run because he’s just one person and Trump has the final say,” said Chen Dingding, a professor of international relations at Jinan University in Guangzhou.
While some analysts have argued that Beijing can take advantage of Mr Trump’s transactional approach to politics and his diminution of the traditional foreign policy establishment, Chen said that the high turnover among the President’s staff made it very hard for China.
“Beijing does not prefer the personal approach, as it’s highly risky and unstable,” he said.
“The Chinese government would prefer to deal with institutions as they provide more certainty.” Ashley Townshend, an expert on China-US relations at the University of Sydney, said that even with Mr Bannon gone, many other Trump administration officials — including senior trade advisers Robert Lighthizer, Peter Navarro and Dennis Shea — are still pushing for aggressive measures to reduce the US trade deficit with China.
“If Beijing expects Trump’s Asia team to go soft in the wake of Bannon’s dismissal they will be sorely disappointed,” said Mr Townshend.
Some Chinese observers even argued that life could get tougher for Beijing without Mr Bannon in the White House because his isolationist views undermined Washington’s standing in Asia and enhanced China’s position as a result.
“It was his nationalist economic agenda that led to the death of the Trans-Pacific Partnership, which was a huge strategic gain for China, said Zhang Baohui, a professor of political science at Lingnan University in Hong Kong.
Beyond killing off the TPP, a 12-nation trade agreement promoted by the Obama administration and seen by many as creating a rival economic bloc to China, Zhang said that the nationalist approach promoted by Mr Bannon had undermined the international legitimacy of the US more generally.
If Trump’s foreign policy tilts back to its more “traditional roots” without Mr Bannon, Beijing would stand to lose, he warned.
“The odd reality could be that while the establishment types in the Trump administration may tone down economic conflicts with China, they may also up the ante on strategic, security, and diplomatic fronts,” he said.
The Chinese foreign ministry did not respond to a request for comment by the time of publication.

Economic War

This '301' Torpedo Is About To Sink The S.S. China
By Gordon G. Chang

On Friday, U.S. Trade Representative Robert Lighthizer formally initiated what some are calling “the first shot in a trade war with China.”
“After consulting with stakeholders and other government agencies, I have determined that these critical issues merit a thorough investigation,” Lighthizer said in a statement posted on the USTR site. “I notified the President that today I am beginning an investigation under Section 301 of the Trade Act of 1974.”
The 301 investigation will “determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”
Who needs an investigation? 

Chinese practices are blatantly predatory. 

Any administration at this time would have had to act.
The only question is the severity of the remedies the White House eventually adopts, perhaps in as few as two months. 

Those remedies should be severe if they are to be effective.
Last week, an “involved observer,” speaking anonymously to the Washington-insider Nelson Report, said it was “hard to imagine that an investigation won’t result in anything other than a broad indictment of China’s policies.”
Broad indictment it should be. 

China, often in violation of its trade obligations, has been requiring American companies to joint venture with local enterprises—thereby being force to share valuable technology with the Chinese partners—as a condition to market access.
Moreover, Beijing is increasingly using national security laws and regulations to take tech. 

“Central to Chinese cybersecurity law is the ‘secure and controllable’ standard, which, in the name of protecting software and data, forces companies operating in China to disclose critical intellectual property to the government and requires that they store data locally,” write Dennis Blair and Keith Alexander in their New York Times op-ed, aptly titled “China’s Intellectual Property Theft Must Stop.”
What the Chinese government cannot take by law, rule, or regulation, its enterprises steal, counterfeit, infringe, copy, or pirate.
And the Chinese take a lot. 

“All together, intellectual-property theft costs America up to $600 billion a year, the greatest transfer of wealth in history,” write Blair and Alexander. 

“China accounts for most of that loss.”
So what could be wrong with a Section 301 investigation? 

The investigation itself is not violative of America’s World Trade Organization obligations, but the remedies can be.
And that is why America’s trade experts are up in arms over the 301. 

Leading the charge is Chad Bown of the pro-China Peterson Institute for International Economics. 

“It became no longer necessary really for the United States that they have to use that law, because now we have an effective dispute settlement system under the WTO,” he told Xinhua News Agency, criticizing the Trade Act of 1974.
Despite what Bown told the official Chinese media outlet, the WTO’s dispute resolution procedure has been ineffective, especially in dealing with countries maliciously seeking to wound foreign competition.
Like China. 

China, almost from its accession to the global trading body in December 2001, has been implementing clearly non-compliant policies, knowing there will, for years, be no penalty. 

There are no penalties levied on a country for violations unless they persist after an adverse decision is handed down by a WTO dispute resolution panel.
That means a country can implement an obviously non-compliant policy, negotiate with the victims during a drawn out consultation period, stall some more, and wait for a decision to be issued. 

By the time the decision is issued, Beijing can injure—mortally—a competitor from another country.
So what is the solution? 

Consult ancient Chinese wisdom, specifically the Golden Rule of Confucius. 

To follow the advice of the ancient sage, America should treat China like China treats America.
Therefore, the Trump administration should impose harsh remedies on China for its various forms of intellectual property theft. 

And the president should be willing to adopt remedies that violate WTO rules if he thinks they will be the most effective.
If the president adopts non-compliant policies, Bown will almost certainly be outraged, but the U.S. can negotiate, stall, and drag out the eventual WTO proceedings. 

When an adverse decision is eventually handed down, the White House can remove the offending provision but then adopt another violative sanction. 

If Chinese trade officials complain of the new measure, Washington can repeat the process.
Moreover, as a practical matter, the United States may not have to repeal remedies that are found to violate WTO rules. 

China could very well decide not to complain.
Why might Beijing be so tolerant? 

There are four points to remember. 

First, last year America’s goods-and-services trade deficit with China, as most recently revised, was $309.3 billion. 

Trade deficit countries don’t have to worry about trade friction as they have little to lose.
America does not have much to lose, but let’s be realistic, the U.S. will be hurt in an escalation of the trade war the Chinese have been waging for decades. 

But let us also remember that after decades of misguided American trade policy, there are no longer any no-cost solutions.
Second, the U.S. does not have an economy geared to selling goods and services to China. 

China, however, has an economy increasingly geared to selling things to America.
Third, the American economy, for all its faults, is stable. 

China’s economy is slowing and heading, perhaps slowly but nonetheless surely, to a debt crisis.
Fourth, Washington can push China around. 

The American economy last year produced $18.57 trillion of gross domestic product. China claimed its 2016 GDP was $11.39 trillion. 

Bigger combatants have an edge in trade wars, especially when the gap is this large.
The U.S. holds the high cards. The only thing it lacks is political will.

To regain political will, all Washington has to do is realize that the World Trade Organization is like the League of Nations. 

The dream behind both bodies was noble, but the WTO is now, like the League was then, utterly incapable. 

Sometimes, the only way to defend multilateralism is to take unilateral action.
Beijing’s new line is that no nation wins a trade war. If Chinese leaders truly believe that, they will immediately stop nationwide theft of American intellectual property.

But if they will not put an end to such predation, Americans have no choice but to defend themselves.
The truth is that countries do win trade wars. And, in my view, the winner will be America.

The New Messiah

Steve Bannon has got a good point on China
By Heather Long 

President Trump's right-hand guy Steve Bannon has been called everything from a “mastermind” to a “racist, anti-Semite.” 

Regardless of what you think of Bannon, he just made a very good point about China.
“To me, the economic war with China is everything. We have to be maniacally focused on that,” Bannon told the American Prospect in a jaw-dropping interview that covered everything from urinating on yourself to North Korea. 

“If we continue to lose it, we're five years away, I think, 10 years at the most, of hitting an inflection point from which we'll never be able to recover.”
Many experts across the political spectrum say Bannon is right: China is beating up America economically, and neither the U.S. government nor U.S. businesses have done much about it for years.
“It's a weird day when I agree with Steve Bannon, but he's right on this,” says Jennifer Harris, a China expert at the Council on Foreign Relations and a former top staffer in Obama's State Department. 

“Going back to George W. Bush, America's policy toward China has been to ask nicely. That has not panned out well.”
Trump often points to the United States' $310 billion trade deficit with China last year as the ultimate sign of a “bad deal.” 

But that's not the real problem. 

The deficit is happening mainly because Americans are shoppers, not savers. 

People in the United States buy a lot of stuff, and that's unlikely to change.
The real issue is that the Chinese are pirating American ideas and technologies. 

In the 1990s and early 2000s, people were worried about China illegally copying movies, music and books. 

The stakes are a lot higher now as the world's top economies compete on groundbreaking technologies in cloud computing, robotics, artificial intelligence and gene editing. 

Whoever controls these technologies will dominate global business — and more.
“When historians look back at this period of history, they are not going to wonder why the Chinese were stealing U.S. intellectual property or business practices, they are going to wonder why the U.S. didn't defend itself,” says Gordon Chang, an expert on the Chinese economy and author of “The Coming Collapse of China.” 

He thinks Bannon is wise to hit China now. 

The Communist Party of China is gathering for its big conference this fall that happens only once every five years. 

Xi Jinping has a lot to lose if tensions flare with the United States.
Since the 1990s, the mantra in corporate America and the White House has been that America needs to cozy up to China. 

CEOs were salivating at getting access to the largest market on the planet: 1.4 billion Chinese. 

But it hasn't worked out like executives dreamed. 

China has deftly put up barrier after barrier to make it hard for American companies to sell in China. 

In the meantime, Chinese firms have profited and are now buying up American companies — everything from W Hotels to Silicon Valley startups. 

A Pentagon report this spring warned that China is pumping billions into hot Silicon Valley companies that are working on cutting-edge military equipment.
“China is limiting market access for U.S. companies in China, yet the Chinese wanted unfettered access to America,” says Evan Medeiros, an Asian strategist at the Eurasia Group who served as Obama's top adviser on the Asia-Pacific region. 

“We need to rethink China's very substantial access to investment in the U.S.” 

Direct Chinese investment in the U.S. is up nearly fourfold in the past two years.
Bannon has a battle plan, and he's already unleashing it. 

On Monday, the Trump administration launched an investigation into whether China is hijacking American business ideas under Section 301 of the 1974 Trade Act. 

At the moment, China forces U.S. companies doing business there to "share” their technology because they have to do a joint venture in order to operate in China. 

The Section 301 move is in its early stages — an initial fact-finding phase — but Bannon made it clear that he plans to push this along.
“We're going to run the tables on these guys,” he said in the interview. 

And he is prepared to do even more. 

He also mentioned bringing a lot more complaints against China for steel and aluminum dumping. On the campaign trail, Trump frequently threatened to slap massive tariffs as high as 45 percent on goods coming from China to the United States. 

CEOs hated the idea. 

It would raise costs on American consumers, they argued. 

Bannon isn't going that far. 

Instead, he's targeting his actions to go after the deeper IP issues and how China subsidizes many of its companies to give them a leg up against foreign competition. 

It would be a real wake up call to the Chinese, experts say.
“We're looking at the most serious U.S. trade action against China probably ever since China opened up,” says Derek Scissors, a China scholar at the right-leaning American Enterprise Institute who helped advise the Trump administration on the recent Section 301 move. 

Scissors has been calling for years for Chinese firms that have stolen U.S. intellectual property to be banned from doing business in the United States.
Bannon's right to take the China threat seriously, but he's also been pushing policies that would be hugely detrimental to America's competition with China. 

First and foremost: Immigration, the process by which America attracts the people who come up with so many of the great ideas that America has and China wants. 

Trump's recent proposal to cut legal immigration in half is being read around the world as a “You're not welcome here” sign. 

That's not going to help America win the global talent wars.
“Creating new IP in the United States is more important than keeping IP from China,” wrote James Andrew Lewis, a senior vice president at the Center for Strategic and International Studies, in a blog post this month.
Perhaps the most surprising part of Bannon's interview this week was when he called North Korea a “sideshow.” 

Trump had tried to do a deal with China: If Chinese leaders could contain North Korea's weapons program, then Trump was ready to look the other way on trade. 

Bannon thinks that's a huge mistake — and so do a lot of people on both sides of the political aisle.
“I think Trump is making a strategic miscalculation. You need to tell the Chinese that both of these issues are important and both need to be addressed on their own,” Medeiros says.
Whether Bannon can put his ideas into practice is another question, as there are vested interests in at least parts of the status quo. 

The biggest obstacle Bannon faces in his quest to go after China is what he calls the “Wall Street lobby.” 

Trump's top economic advisers — Gary Cohn at the National Economic Council and Treasury Secretary Steve Mnuchin — are former Goldman Sachs executives who don't want a trade war with China.

Scissors saw the tensions firsthand. 

He described a lot of "flipping around" on what to do.
Former Obama administration staffers such as Harris and Medeiros saw similar tensions play out in their time. 

They say the business community talks out of both sides of its mouth on China. 

CEOs complain that the Chinese government is restricting business opportunities, but when the U.S. government prepares to act, CEOs warn of a “parade of horribles” like trade wars and even a recession. 

Harris thinks it's overblown.
“I'm actually skeptical that China will retaliate, especially ahead of the party congress this year,” she says. 

The business community made the same huff and puff before the U.S. put sanctions on Russia. 

“We all woke up the next day, and European banks didn't fail and the stock market continued to go gangbusters.”
Bannon just might be able to get Trump to do what the Bush and Obama administration failed at on China. 

That is, if he can stay in the White House long enough to make it happen.

Economic War

Steve Bannon: 'The economic war with China is everything'
By Tom Mitchell in Beijing

The US and China are engaged in an economic war from which there will be only one winner, Steve Bannon, the White House strategist, has warned in a stinging attack on Washington’s principal geopolitical rival.
In an impromptu and wide-ranging interview published online on Thursday morning Beijing time by The American Prospect, a left-leaning US magazine, Mr Bannon also said he was working to place anti-China hawks in key positions at the defence and state departments, and that there was “no military solution” to the North Korean nuclear crisis.
 “We’re at economic war with China,” Mr Bannon said.
“One of us is going to be a hegemon in 25 or 30 years and it’s gonna be them if we go down this path. “The economic war with China is everything and we have to be maniacally focused on that,” said the presidential adviser.
“If we continue to lose it, we’re five years away, I think, 10 years at the most, of hitting an inflection point from which we’ll never be able to recover.”
Robert Kuttner, co-editor of The American Prospect, said Mr Bannon had phoned him on Tuesday, the same day that Donald Trump returned to his initial assessment that “both sides” had been to blame for the clashes between white supremacists and anti-Nazi protesters in Charlottesville, Virginia.
Mr Bannon, a leading figure in the “alt-right” movement before joining Mr Trump’s campaign, has been embroiled in a power struggle with HR McMaster, the president’s national security adviser. Blamed by more centrist White House officials for a stream of leaks against his foes within the administration, he was increasingly isolated before the events of last weekend.
The pressure on him has increased in the wake of the Charlottesville protests.
Mr Trump was equivocal about his adviser’s future at Tuesday’s press conference, saying “he is not a racist”, while adding ”but we’ll see what happens with Mr Bannon”.
During the call to Mr Kuttner, Mr Bannon dismissed the neo-Nazi movement in the US as a clownish “fringe element”.
“I think the media plays it up too much and we gotta help crush it,” he said.
“These guys are a collection of clowns.”
His comments will confirm Beijing’s worst fears about him.
Since Mr Trump assumed office, Chinese officials have lobbied more pro-China administration figures and Jared Kushner, the president’s son-in-law, and Ivanka Trump, his daughter, in an attempt to ease bilateral tensions.
So far the strategy has worked.
Mr Trump has backed off from threats to abandon Washington’s longstanding “One China” policy, to declare China a “currency manipulator” and to launch punitive trade actions against the world’s second-largest economy, especially if Beijing did not pressure North Korea to abandon its nuclear and missile development programmes.
According to Mr Bannon, North Korea was a “sideshow” in the context of a winner-takes-all competition between the world’s two largest economies and the US should not let up on trade issues in return for Beijing’s help in pressuring Pyongyang.
“There’s no military solution [to North Korea’s nuclear threats], forget it,” he said.
“Until somebody solves the part of the equation that shows me that 10m people in Seoul don’t die in the first 30 minutes from conventional weapons . . . they got us.”
On Monday Mr Trump announced that he would study unfair Chinese trade and investment practices in a probe that could take a year to conclude. 
But Mr Bannon promised to go on the offensive against China, saying he was fighting “every day” against the Treasury department, headed by Steven Mnuchin, and Gary Cohn, economic adviser.
He was working at “getting hawks in” at the defence and state departments, adding that his bureaucratic rivals were “wetting themselves”.
“We’re going to run the tables [on China],” Mr Bannon said.
“We’ve come to the conclusion that they’re [engaged] in an economic war and they’re crushing us.”

Trump has filled his vaunted trade team with China hawks — and we love it

By Allan Smith

President Donald Trump this week filled his lone remaining top trade post with yet another China hawk — much to the delight of trade reformers.
Trump on Tuesday tapped Robert Lighthizer as his choice for US trade representative. 

Lighthizer was the deputy US trade representative under President Ronald Reagan and has been a longtime critic of Chinese trade practices.
The soon-to-be chief US trade negotiator, Lighthizer worked to curb Japanese imports in the 1980s using threats of quotas and tariffs, similar to Trump's threats against American companies looking to import products from China. 

Lighthizer has spent decades as a lawyer representing US steelmakers and other companies in cases that led to a significant reduction in Chinese steel imports.

Lighthizer's appointment joins him with two other prominent China hawks among Trump's team of trade advisers. 

It signals "a return to the Reagan era of unilateral trade policy," Sharyn O'Halloran, a political economics professor at Columbia University, told Business Insider in an email.
In 2010, Lighthizer wrote in testimony to Congress's US-China Economic and Security Review Commission that the trade deficit between the US and China was at the point where it was "widely recognized as a major threat to our economy."
Lighthizer joins Peter Navarro, an economic adviser to Trump's campaign and a fellow outspoken China hawk. 

Trump tapped him to lead a newly formed White House National Trade Council.
Navarro has written books such as "Death by China" and "Crouching Tiger: What China's Militarism Means for the World." 

He too has advocated a more aggressive stance in the economic war with China.
In a release about Lighthizer's appointment, the Trump transition team wrote that Lighthizer, Navarro, and the nominee for commerce secretary, Wilbur Ross — who went to war against Chinese steelmakers in the early 2000s — will work in "close coordination" on trade policy.
Of course, the get-tough-on-China message originates from the top, as Trump has accused China of "raping our country" and being at the head of the greatest "jobs theft" in history.
Trade reformers praised Trump's latest move, with Michael Stumo, the CEO of the Coalition for a Prosperous America, calling Lighthizer and "excellent choice" to replace current US Trade Representative Michael Froman.
The head of Trump's trade transition team, Nucor CEO Dan DiMicco, is on the board of CPA.
"He understands that international trade is a strategic game of conflicting national interests and a competition for good jobs and industries," Stumo said in a statement. 

"America must move past the failed and simplistic Econ 101 trade policy of the past because the results have been an economic carpet bombing of the non-urban areas of the US.
"We are confident that the combination of Lighthizer, Peter Navarro, and Wilbur Ross will be effective in working to balance trade, achieving net creation of good jobs, and growing a diverse manufacturing supply chains here."
Lori Wallach, the director and founder of Public Citizen's Global Trade Watch, also praised Lighthizer's appointment.
"Lighthizer is very knowledgeable about both technical trade policy and the ways of Washington, but what sets him aside among high-level Republican trade experts is that for decades his views have been shaped by the pragmatic outcomes of trade agreements and policies rather than fealty to any particular ideology or theory," she said in a statement.
Even Democratic Sen. Sherrod Brown of Ohio, one of the more liberal members of the legislative body and fellow trade-reform advocate, said he looked forward to hearing how Lighthizer would pull through on Trump's trade agenda.
"President Trump campaigned on the promise that he would rewrite US trade policy and create more manufacturing jobs," he said in a statement. 

"I look forward to hearing from Mr. Lighthizer how he will accomplish these goals, including withdrawing from the Trans-Pacific Partnership, renegotiating NAFTA, and resetting the US-China trade relationship."
The core combination of Lighthizer, Navarro, and Ross view trade as being a "zero-sum game about winners and losers," said Joshua Meltzer, a senior fellow at the Brookings Institute.
He said it remains to be seen how the ideology plays out in governance, but added that he expects "a fairly aggressive trade policy coming out of the Trump administration."
Meltzer said views in Beijing are mixed about how Trump and his top trade team would affect relations between the two countries.
"I think on the one hand there's been a view in Beijing for a while now that Trump's a businessman who does deals and that this will open up opportunities to make progress in some areas that are important to Beijing," he said. 

"That may not have been possible under a [Hillary] Clinton presidency. I think they see Trump as very transactional."
But "at the same time now there is a growing appreciation that the Trump administration is going to present a whole range of challenges to China, from currency through to investment and market access and the like," he continued. 

"So I think they are trying to assess how bad this is going to get, how far he's willing to take this."

Halting China’s free ride

President Trump won’t abide Obama’s obsequious approach to trade
By Brahma Chellaney
China on the Trump Radar Screen

President Donald Trump ran an election campaign that challenged American diplomacy’s long-standing principles and shibboleths. 

Since his election triumph, Mr. Trump is already rewriting the rules of the presidency and signaling that his foreign policy approach will be unconventional.
Even before assuming office, Mr. Trump has moved away from Obama’s foreign policy approach by staking out starkly different positions on several sensitive subjects, including China, Taiwan, Israel, terrorism and nuclear weapons. 

A Trump presidency may not bring seismic shifts in American policy but it is likely to lead to significant change in U.S. priorities, geopolitical focus and goals as well as in the tools Washington would be willing to employ to help achieve its desired objectives.
No country faces a bigger challenge from Mr. Trump’s ascension to power than China, which has been flexing its military and economic muscles more strongly than ever. 

After the Obama administration’s obsequious stance, Beijing must brace up and face an assertive new national security and economic team in Washington that is unlikely to put up with its covert territorial expansion and trade manipulation.
Mr. Trump has signaled a need to recalibrate foreign policy by shifting its geopolitical focus from Russia to the increasingly muscular and openly revisionist China. 

Unlike Russia’s 2014 annexation of Crimea, China’s territorial revisionism, as illustrated in the South China Sea and the Himalayas, is creeping and incremental yet relentless.
Mr. Trump’s focus on China and Islamic radicalism indicates that, far from retreating from Asia and the Middle East, America is likely to play a sharper, more concentrated role. 

For example, the U.S. military could carry out more significant reconnaissance and freedom-of-navigation operations in the South China Sea.
To countries bearing the brunt of China’s recidivist policies, the Obama administration’s reluctance to challenge Beijing forced several of them to tread with excessive caution around Chinese concerns and interests. 

A wake-up call came with Obama’s silence about the 2012 Chinese capture of the Scarborough Shoal, located within the Philippines’ exclusive economic zone. 

Washington did nothing in response to the capture, despite its mutual-defense treaty with the Philippines.
That inaction helped spur China’s frenzied creation of artificial islands in the South China Sea. 

In late 2013, when China unilaterally declared an air defense identification zone covering territories it claims but does not control in the East China Sea, Obama again hesitated, effectively condoning the action. 

And recently, his meek response to what Mr. Trump called “an unprecedented act” — China’s daring seizure of a U.S. underwater drone — advertised American weakness.
In the dying days of the Obama administration, an emboldened China is rushing more missiles to its man-made islands in the South China Sea, where, on Obama’s watch, it has built seven islands and militarized them in an attempt to annex a strategically crucial corridor through which half of the world’s annual merchant fleet tonnage passes.
China has demonstrated that defiant unilateralism is cost-free — but it knows that its free ride is about to end, with Mr. Trump willing to adopt a tougher and less predictable line toward it. 

This is apparent from Mr. Trump’s suggestion, after taking a phone call from Taiwan’s president, Tsai Ing-wen, that a “one-China” policy is no sacred cow for him.
By subsidizing exports and impeding imports, China has long waged an economic war against other major economies. 

The Obama administration’s announcement last April of a deal under which China would scrap export subsidies on some products, largely agricultural items and textiles, drew skepticism in the markets because it did not cover major exports, including steel.
Trade is one area where Mr. Trump must deliver on his campaign promises or risk losing his credibility with the blue-collar constituency that helped propel him to victory. 

He is threatening to slap punitive tariffs on China for what he described during the campaign as “the greatest theft in the history of the world”.
Mr. Trump is unlikely to be deterred by the specter of a trade war with China for the simple reason that Beijing is already waging an economic war. 

In fact, Mr. Trump’s argument for a tough China stance will be that Beijing’s one-sided economic war must be halted. 

Such a policy approach is also apparent from some of his appointments, including economist Peter Navarro, the author of “Death By China,” “The Coming China Wars,” and “Crouching Tiger: What China’s Militarism Means for the Rest of the World.”
U.S.-China ties could be in for a rough patch for another reason: Mr. Trump could pivot to Asia in a way Mr. Obama did not. 

Mr. Obama’s failure to provide strategic heft left his Asia pivot unhinged.
To be sure, Mr. Trump is likely to face resistance to recalibrating U.S. foreign policy from two powerful lobbies in Washington — a large tribe of “panda huggers” and the old establishment figures who spent their formative years during the Cold War obsessing with the Soviet threat and now see Russian President Vladimir Putin as the epitome of evil.
Mr. Trump’s task is made more onerous by a mainstream media that remains hostile to him despite its epic failure to anticipate or predict the election outcome.
Still, a determined Donald Trump is likely to reorient U.S. foreign policy in potentially momentous ways.

The right man in the right place

‘Death by China’ author Peter Navarro to lead new White House National Trade Council
By Demetri Sevastopulo and Shawn Donnan in Washington

Professor Peter Navarro

Donald Trump plans to create a National Trade Council inside the White House to oversee industrial policy and is appointing one of the architects of the populist economic message to run the new group.
Mr Trump has chosen Peter Navarro, a Harvard-trained economist, to head the NTC, his transition team announced on Wednesday in news reported first by the Financial Times. 

The author of books such as Death by China and Crouching Tiger: What China’s Militarism Means for the World has for years warned that the US is engaged in an economic war with China and should adopt a more aggressive stance — a message that the president-elect sold to voters across the US during his campaign.
“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,” Mr Trump said. 

“He has presciently documented the harms inflicted by globalism on American workers, and laid out a path forward to restore our middle class.”
The Trump transition team described Mr Navarro as a “visionary economist” who would “develop trade policies that shrink our trade deficit, expand our growth, and help stop the exodus of jobs from our shores”. 

His appointment is the second restructuring of trade policy that will see Mr Trump attempt to follow through on his focus to resurrect manufacturing, and create more industrial jobs, in the American economy.
The FT reported earlier this month that Mr Trump had tapped Wilbur Ross, a billionaire investor who has been nominated as secretary of commerce, to oversee his trade policy, creating a new inter-agency process that would cut the influence of the US Trade Representative, the office which has for years negotiated trade deals.
Mr Trump has yet to nominate his candidate for USTR, which traditionally sits in the president’s executive office, and the transition team has said it is still discussing internally how the role would fit with its broader trade agenda.
The Trump team said the NTC would focus on boosting manufacturing and also lead a “Buy America, Hire America” programme that would boost job creation in areas such as infrastructure and defence. 

It will work in tandem with three other offices in the White House: the National Security Council, the National Economic Council and the Domestic Policy Council.
They added that it would mark the first time there was an office dedicated to manufacturing inside the White House, in a strong signal that Mr Trump plans to follow through on the promises that he made on the campaign trail.
“We were a great team during the campaign, and we will be a great team during the administration,” said Mr Ross, who co-authored a white paper filling out the Trump economic policy with Mr Navarro during the campaign. 

It called for a focus on reducing the US trade deficit and boosting manufacturing, arguing both would help restore economic growth to a historical average of around 3.5 per cent per year.
Mr Trump has moved quickly to name a cabinet and team of top advisers that leans heavily on people with business and military experience and that mostly eschews people with executive experience in Washington.
The move to create the new office is likely to be seen as controversial by pro-China economists, many in the business community and pro-trade Republicans. 

It also raises questions about the role of the National Economic Council in a Trump White House. The NEC was established to perform similar functions by Bill Clinton following his 1992 election and Mr Trump has picked a heavy-hitter — former Goldman Sachs executive Gary Cohn — to head it.

Targeting the trade deficit is seen by some economists as likely to lead to protectionist trade policies. It may also be complicated by Mr Trump’s plans for an increase in spending and rising interest rates, both of which have already yielded a surge in the dollar that is likely to make US exports less competitive and lead to a larger trade deficit. 

Separately, Mr Trump on Wednesday named investor Carl Icahn to serve as a special adviser on regulatory reform.
The president-elect is also considering naming Matthew Pottinger, a former US marine who served in Iraq and Afghanistan, as his top Asia adviser in the White House, in what would amount to another appointment of a top official with a military background.
Mr Pottinger, a former Wall Street Journal correspondent in China who became a marine after the 9/11 terror attacks, is the frontrunner for the top Asia role, according to three people familiar with the deliberations. 

Mr Pottinger, a Chinese speaker, would advise Michael Flynn, the retired army general selected as national security adviser. 

Mr Pottinger served at the same time in Afghanistan as Mr Flynn and was one of the co-authors of a paper that the retired general wrote on the problems with the US intelligence apparatus.
“Matthew Pottinger is a member of our transition support element. He is being considered but no decision has been made,” said Jason Miller, spokesman for Mr Trump.