Sina Delenda Est

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

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

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

Europe pledged to buy more American energy and agricultural products. 

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

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

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

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

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

It copies or steals trade secrets belonging to foreign firms. 

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

Trade experts say that won’t work. 

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

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

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

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

That’s a good idea. 

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

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

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

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

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

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

And there was no mention of any action on autos. 

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

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

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

Maybe it was a big day after all.

How Trump Will Win the Trade War with China

Beijing has not yet realized that lobbyists, even lobbyists for Blue Chip companies like Boeing and Apple, are not high on Trump’s list of favorite people. 

By STEVEN MOSHER

The American business press is filled with doomsday scenarios about the trade war that the President-elect is supposedly about to unleash on the world.

• “Trade War’s Biggest Loser—Stocks,” blared The Wall Street Journal on Friday, predicting falling stock prices if Trump follows through on trade.
• “A Trade War with China is Likely Under Donald Trump,” writes Minxin Pei in Fortune magazine, predicting that each countries exports to the other will “collapse,” and a “dangerous military confrontation” over the South China Sea or Taiwan may follow.
• “8 Reasons Why Starting a Trade War with China is a Bad Idea,” editorialized CNN, giving as reason number one the fear that China will “respond” in kind, and ending by arguing that the yuan is already “fairly valued,” a statement most economists would take issue with.

Most of these stories envision a vicious circle of tariffs and countertariffs – a kind of economic mutual assured destruction – that ends in a global recession.
The Smoot Hawley tariffs are invariably invoked, even though we now know that these did not cause the Great Depression.
A few imaginative souls have even speculated that lowering the boom on Chinese cheating will actually benefit China.
 Bloomberg, for example, published an article by Michael Schuman entitled, “Who Wins a Trade War? China.”
In the article, Schuman argues that any effort to level the trade playing field will only accelerate China’s effort to develop “national champions.”
These are the government-subsidized behemoths that Beijing imagines will one day soon be able to flood the American market with cheap smart phones, medical devices, and electric cars.
(Someone in the Chinese leadership ought to ask Japan’s mighty Ministry of Economy, Trade and Industry (METI) how its enormously expensive effort to pick winners and losers over the decades has worked out. The answer: not very well.)
As the countdown to the inauguration continues, it is dawning on American business circles that President Trump is actually serious about stopping China’s cheating on trade.
Their nervousness over the prospect of a confrontation with one of America’s largest trading partners is real and growing.
Beijing, for its part, is doing everything it can to stoke their anxiety.
The Chinese Communist Party’s Global Times has already started issuing threats, promising to retaliate if tariffs of 45% are imposed on Chinese-made goods.
“A batch of Boeing orders will be replaced by Airbus,” the paper threatened on November 13th. “U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted.”
Apparently Beijing has not yet realized that lobbyists, even lobbyists for Blue Chip companies like Boeing and Apple, are not high on Trump’s list of favorite people. 
Nor have they grasped that the businessman does not respond well to threats.
Trump, on the other hand, understands perfectly well that the Chinese leadership does not merely cheat on trade: it is the biggest trade cheater in the history of man. 
He is under no illusions about the fact that Beijing is engaged in all-out economic warfare against the United States.
The numbers don’t lie.
The Chinese sold us $367 billion more stuff in 2015 than we sold them, $483 billion versus a paltry $116 billion.
The shipping containers from China arrive full and go back empty.
America’s trade deficit with China is spiraling out of control.
Trump advisor Peter Navarro has explained how China is cheating on trade, and it has nothing to do with a lack of American competitiveness.
Nor is it solely a matter of Beijing manipulating its currency.
Rather, Navarro says, Beijing engages in five unfair trading practices.
Besides manipulating its currency and providing illegal export subsidies, it engages in massive intellectual property theft, avoiding research and development costs.
Add to this lax worker safety standards—tens of thousands of Chinese workers are killed each year on the job—and environmental regulations that go unenforced.
Taken together, these unethical and illegal practices reduce the price of Chinese goods sold in American stores by 45%.
President-elect Trump has proposed a simple yet elegant solution to this inequity: he promises to impose a tariff of 45% on all Chinese-made goods coming into the United States.
My prediction is that China, recognizing that for the first time they are dealing with an American president who is serious about righting the trade imbalance, will come to the negotiating table before this happens.
First of all, China’s leaders know that, as President, Donald Trump will enjoy broad authority on trade matters.
He can, on his own authority and without consulting Congress, raise tariffs, impose quotas, and terminate trade agreements.
His promised renegotiation of the North American Free Trade Agreement with Mexico and Canada will be a further wake-up call for the Chinese, signaling that he is serious about righting the trade imbalance not just with American’s near neighbors, but with China as well.
Another reason to expect China’s leaders to blink is that their export-oriented economy is far more vulnerable than ours to a trade war.
According to the World Bank, 41.2% of China’s GDP comes from exports and imports.
The comparable figure for the U.S. is only 27%.
In fact, these numbers understate the risk to China’s economy.
For while the United States is China’s most important economic partner, the converse is not true.
Beijing desperately needs American consumers to keep buying massive amounts of Chinese-made goods, especially now.
China’s export sector is essentially stagnant, its factories suffer from overcapacity, and the country as a whole is running at a significant fiscal deficit.
The last thing the Chinese leadership wants is for their country’s already fragile economy to be disrupted by a trade war.
If China actively takes steps to avert a trade war with the United States, as I expect it will, it will not be the first time that Beijing has chosen negotiation over confrontation.
Beijing has a long history of resolving trade imbalances with its East Asian neighbor, Japan, in exactly this fashion.
When the balance of payments between the two countries skews in one direction or the other, trade officials from both countries sit down and draw up plans to bring trade back into balance.
Negotiations between American and China will necessarily be more complicated, not least by the enormity of the trade deficit in question, but can in principle be resolved the same way.
There is one final reason, less tangible perhaps, why I expect Xi Jinping to eschew retaliation in favor of negotiation.
He and the other members of the top echelon of the Chinese leadership live in a world defined not by rules but by interpersonal relationships.
It is a system where the strong are respected, while the weak are mercilessly crushed.
I believe that President Trump will, more than Obama, Bush, or Clinton, enjoy the respect of the CCP leadership.
After all, a strong-willed, no-nonsense, deal-maker is a type that Xi Jinping and his colleagues will instantly recognize.
In fact, Trump may well turn out to be precisely the right person to strike a bargain with China, saving American jobs and factories.
For the time being, expect China’s leaders to continue to bluster and bully, even as it becomes increasingly clear to them that their threats are having absolutely no effect on President-elect Trump. Then, just before Trump slaps them with tariffs—and serious damage is done to China’s economy–they will agree to sit down and negotiate a reasonable accommodation on matters of trade.