Sino-American Trade Relations: The Rhetoric Needs to Match the Reality

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Fulfilling his campaign pledge to bring jobs back to the United States, President Donald Trump cancelled the Trans-Pacific Partnership (TPP) on his first day in the White House. It was President Barack Obama’s signature trade deal to create a free-trade zone with 11 other nations encompassing almost 40 percent of the world’s economy. Trump also threatened to impose a 45 percent tariff on Chinese goods if Beijing did not “behave” as he believed that American jobs were being lost to China.

Interestingly, Trump has selected Iowa Governor Terry Branstad as his ambassador to China. Branstad understands the value of trade with China as Iowa has been exporting agricultural products—especially soybeans and pork—to the country for decades. This suggests that Trump might back away from some of his campaign rhetoric. Yet, the fact that Trump was elected based upon the use of these rhetorical devices—also present in the Hillary Clinton campaign—suggests that there is a lack of understanding in the American electorate of the symbiotic relationship between the United States and China. Likewise, politicians have been culpable for capitalizing on the anti-China trade sentiments of the average voter.

That either Trump or Clinton could win an election based upon attacking a trade policy that has benefitted so many people on both sides of the Pacific for so long is at best disingenuous, and at worst, exploitative. Voters should be more informed about their candidates’ policies, and politicians should serve the electorate in good faith and stop pandering to a political base that subscribes to a zero-sum, take no prisoners theology, and both need to develop a better understanding of the historical context between China and the United States.

While China’s trade relations with America go back to the seventeenth century, its development in the twentieth century began when Deng Xiaoping took the helm, succeeding Chairman Mao Zedong. Deng set China on a path of economic reform, liberalizing trade and opening the China market up to the United States in 1979. Beijing gained the Most Favored Nation status in 1980 and joined the World Trade Organization (WTO) in 2001.

Since then, China has grown from a $2 billion a year export market to a more than $20 billion a year market for American farmers and ranchers in 2016. In 2015, China was America’s largest goods trading partner, and was America’s third largest goods export market. In 2016, the renminbi (RMB) became one of the International Monetary Fund’s five reserve currencies—a significant economic achievement for China.

In the eyes of many Americans, any Chinese gain means American losses. The notion that China is stealing American jobs makes for a specious argument, but it is not entirely true. While it is true that U.S. manufacturing jobs have been on the decline with increased productivity, this has been due more to automation than trade. While trade with countries with cheaper labor has hurt American jobs, rising costs in China’s export producing zones have forced companies to relocate out of China to even lower cost locations like Bangladesh, Ethiopia, Indonesia, the Philippines, and Vietnam. Similar to the United States, this downward pressure is likely to continue as China moves up the value chain.

President Trump’s assertion that China is guilty of currency manipulation is true, but not in the way he thinks. Indeed, while the People’s Bank of China has intervened in currency markets over the past few years, the intervention was to prevent the RMB from falling too sharply against the American dollar. If China were to allow the markets to determine the value of the RMB, it would depreciate even faster and enhance China’s trade competitiveness with the United States. China has also eliminated subsidies for its exporters in seven diverse sectors that range from textiles to agricultural products.

While China’s cultural past is thousands of years old, its economic development has historically been very slow due in large part to colonial invasions and internecine conflicts. The amount of centralized control in the post-Deng economy reflects a Hamiltonian-centric, mercantilist approach like America’s nascent period of development after the Revolutionary War, and likely further solidified during the 2008 financial crisis.

Far from a China apologist, it is simply an observation that, in China’s economic development, the sometimes chaotic approach in the American capitalist system can often seem disquieting to the Chinese, who prefer more Confucian social order and political stability. While its trade policies are occasionally manipulative, it does still have obligations to the WTO. It is worth noting that it is this centralized control that has been largely responsible for China’s economic growth.

China’s rising assertiveness is no doubt driven by the Century of Humiliation. Speaking at Peking University on the ninety-fifth anniversary of the May Fourth Movement, President Xi Jinping drew a direct connection between the Movement and China’s current position on the world’s stage, declaring that “just like buttoning a coat. If the first button is done wrong, all others will be buttoned wrong.”

But, all the polemics about China stealing jobs seem to miss the point that, if policymakers really want to bring jobs back to America, they need to prepare its citizens for the jobs of the future by providing retraining and improving education. Pronouncements about “trade wars” and bringing manufacturing jobs back to America by the millions is simply pandering. Manufacturing jobs, for the most part, are not coming back to the American heartland. In fact, those jobs have left China and are not coming back to China either. Waging a trade war would simply be a race to the bottom. The Trump White House may have options for punishing China, but Beijing has plenty of options too. As Chinese President Xi Jinping recently said at the World Economic Forum in Davos, “No one will emerge as a winner in a trade war.”

China has already managed to parlay TPP’s demise to its advantage. Those nations left out in the cold by TPP, which did not include China, are now looking to join the Regional Comprehensive Economic Partnership (RCEP), which does not include the United States. The RCEP makes up almost half of the world’s population and nearly 30 percent of global GDP. Moreover, it sets America’s high ideals adrift as RCEP “lacks the protections for labor, human rights, and the environment” that had been specified in the TPP.

If President Trump wants to “Make America Great Again,” he should focus on more current and relevant global trends and Sino-American issues such as intellectual property rights, market access, cyber-security, state-owned enterprises, and the ongoing Bilateral Investment Treaty negotiation. Railing against the loss of manufacturing jobs is to dwell on something that has already been overcome by the forces of automation and globalization. In other words, Americans should pay less attention to the partisan headlines and more attention to the historical trendlines in Sino-American commercial intercourse that has raised millions from abject poverty on both sides of the Pacific.

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Patrick Mendis, PhD, a Harvard Kennedy School’s former Rajawali senior fellow, is an associate-in-research at the Fairbank Center for Chinese Studies at Harvard University, a senior fellow of the Pangoal Institution in Beijing, and a distinguished visiting professor of Asian-Pacific affairs at Shandong University in Jinan, China. He is the author of Peaceful War: How the Chinese Dream and American Destiny Create a Pacific New World Order (www.patrickmendis.com). Joey Wang, an alumnus of the Harvard Kennedy School’s Executive Leadership Program, is a defense analyst.

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