January 5, 2019
The United States and China look like two punch-drunk prizefighters squaring off for a major championship fight. They have no good reason to fight and every reason to cooperate now that both their stock markets have been in turmoil.
Six hundred point market swings down and then up look like symptoms of economic nervous breakdown.
Factions in both nations are beating the war drums, putting presidents Donald Trump and Xi Jinping under growing pressure to be more aggressive.
Trump shoulders much of the blame for having started this unnecessary confrontation by imposing heavy duties on Chinese goods. The US president has turned the old maxim on its head that nations that trade heavily don’t go to war. The US and China, both huge trading partners, appear headed to military clashes, or even full scale war, if their governments don’t come to their senses soon.
Trump was clearly trying to bully China into major trade concessions and better commercial behavior. He is right about this. I’ve done business in China for over 15 years and seen every kind of chicanery, fakery and double-dealing imaginable. China learned from the French that the First Commandment is ‘Thou Shalt Not Import.’
The Japanese are no better. I recall Japanese health authorities telling my pharma firm that all our tablets had to be triangular shaped to make them nearly impossible to swallow.
Theft of technology is indeed rampant, as Trump asserts. But has he looked into CIA and NSA’s techno spying recently? They ransacked the Soviet Union during its last dying days. Much of our postwar missile technology was developed by German scientists spirited off to the USA. After the Sputnik launch in 1957, I recall seeing a German cartoon showing a Soviet and US satellite in orbit next to one another. One whispers to the other, ‘Now that we’re alone, let’s speak German!’
Meanwhile, US warships are patrolling the South China Sea and playing chicken with Chinese naval units and aircraft. It’s only a matter of time before a dangerous incident occurs that could spark a real shooting war. The Trump White House has been encouraging India to challenge China at sea and in the high Himalayas.
Beijing has pulled the rug out from under Apple sales in China, causing a near panic on the US stock market. In his quest for power and glory, Trump may have fatally wounded US financial markets. Apple was the shining example of fruitful cooperation between the US and China.
Trump’s confrontation with China was aimed at winning him votes in the US Farm and Bible belts. It’s ironic that over 80% of Trump backers who profess themselves evangelical Christians are cheering on his military adventure against China and, for that matter, North Korea. ‘Turn the Other Cheek’ got lost on the road to Iowa.
China’s ruler, Xi Jinping, has gotten sufficiently annoyed with Trump to rekindle his nation’s strident claims to ‘renegade province’ Taiwan. In past years, the mighty US Seventh Fleet would have turned any Chinese invasion fleet into chow mein. US Naval officers used to claim they would make a Chinese amphibious invasion of Taiwan into ‘a million-man swim.’ Today, China has the technology, manpower and naval power to invade Taiwan, should it so choose.
While lacking the military proficiency of the US Navy, China’s new fighters, drones, anti-ship missiles and fleet submarines already pose a serious challenge to the US 7th Fleet. It would be foolish to underestimate China’s striking power.
In the midst of all these tensions, the US chose to get Canada to arrest the daughter of China’s leading high tech firm, Meng Wanzhou, on charges of trading with Iran. Trump appeared unaware of plans to arrest Meng as she was transiting Vancouver airport. There is a very strong suspicion that the rabid hawks in the White House, John Bolton and Mike Pompeo, hatched this incident to keep the US and China in confrontation.
During the Bush administration, Bolton pulled off a similar machination to thwart a peace deal between North Korea and the US. Now the Chinese are humiliated and furious at Washington for the arrest of Mrs Meng, and the Canadians, who had no business getting involved in this fracas over Iran, are left holding the bag. Pathetic.
Copyright Eric S. Margolis 2019
Trump is right on some things, like China requiring (stealing) technology transfers. But he screwed up in how to tackle them. Fights like this require allies and Trump has none. Between tariffs on steel and aluminum and the Mrs. Meng affair, Trump has kicked Canada in the balls. Don, we’re sore and we’re pissed.
…and we’re bending over backwards to please the Americans.
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Dik
… Yeah, and who cares about the farmers that voted for Trump going broke because of Trump’s Tariffs. And those supposed 500,000 manufacturing jobs? Was that before or after GMs plant closings in America and Canada and moving those jobs to China. While I do agree the stock markets do not help the average American or Canadian much. Burning them down in one felled swoop will negatively and severely impact multi-millions of folks’ retirement savings. There is a better way.
An interesting effect of the deficites… the total traded values have diminished, but the actual trade deficit has increased… a bad unintended consequence.
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Dik
With the United States and China ‘duking’ it out, the world economy is in jeopardy, with a potential major recession (aka depression) being a real possibity. Other than the huge balance of trade differential between the US and China, there was no problem. This is a consequence of American consumers, not Chinese exporters. The cause of this trade war rests solely, not partially, on Trump’s belligerence.
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Alan Greenspan, the former Chair of the Federal Reserve for nearly two decades, has warned of the potential collapse, and, has given his explanation. This volatility is reflected in the large deltas in the stock market.
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Your comment, “Factions in both nations are beating the war drums…”, points out the seriousness of the matter. I recall the Cuban Missile Crisis, and ultra patriot Kennedy was prepared to bring the world to WW III; it was Khrushchev’s sensibilities that prevented this. I hope God has a nice warm place reserved for JFK. The Cuban Missile Crisis was an epiphany. and I realised what a monster Kennedy was. I think Trump is less stable than JFK and a ‘good war’ might help his presidency. Scary thoughts…
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I think you’re correct when you state, “…that nations that trade heavily don’t go to war.” Trump’s actions are destroying ‘trade heavily’ part, and are bringing the nations to greater conflict. I think this economic ‘rivalry’ was the real cause of WW II; the Germans invading Poland was simply convenient. The American belligerence, including then their actions in the South China Sea is only adding a little more ‘fuel to the fire’. I’m not sure who the ‘winner’ would be, but, I’m pretty sure the world would be the loser. Americans have never been involved in war that affected their country (The wars were always somewhere else). This might be one of the reasons they have a propensity for being warlike. In the event of a conflict, the American homeland would be involved, and, they would not be able to escape.
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There’s no question that the Chinese have some questionable requirements about doing business. This is not much different that requirements of other nations. They take a serious step in requiring the ‘trade secrets’ and development in their country follows ‘their rules’. This is to clearly benefit China in the long run.
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If the Americans don’t want to accept these terms, then they can invest elsewhere. I think that intellectual property is a term largely used by capitalists as a means of creating a monopoly or minimising competition. In ancient times, the concept of addition or subtraction could be considered as intellectual property; fortunately this did not happen. Theft of technology is pretty much the same, unless a specific process is discovered or invented. As you note, theft of technology is not limited to foreigners.
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The Apple example is largely ‘fall out’ from a call to nationalism in support of Huawei. A couple of Huawei employees were disciplined for texting using an Apple iPhone. Huawei is an Chinese company with close ties to the government (I think a lot of Chinese companies fall into this category.) that the West considers as a technological ‘spy’ that can affect security of telecommunications. Canada’s excuse for arresting Meng Wanzhou was that we were only following the Rule of Law and that our police departments are independent of the politics. We have and will suffer the consequences of being an American ‘lapdog’. We are viewed as such by many countries.
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The West ‘turns a blind eye’ Microsoft Windows sending huge amounts of personal data, from users of Windows, to their servers by code embedded in the Windows OS. This is spyware at its worst and condoned by Western governments; I wonder if the governments are on Microsoft’s mailing list?
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‘Turn the Other Cheek’ got lost on the road to Iowa. Great observation and statement. I’ve always wondered how evangelicals can be so ‘anti-abortion’ and so ‘pro capital punishment’. This seems like a real dichotomy.
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In a Chinese sense we are ‘living in interesting times’. I was informed by a Chinese engineer, that the real Chinese curse is, “May your name be brought to attention of those in authority.” The former is less ominous.
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Dik
Who cares about the stock markets?? Really.
The key issue, and the one that Trump was elected on by the blue collar demographic, is more jobs and higher paying jobs. The trade barriers have brought back over 500,000 manufacturing jobs to the US since Trump was elected.
Also, critically, wage rates have gone up for the first time in decades.
Moving manufacturing and high paid jobs back to the US and the rest of the western world will involve a lot of conflict but the payoff is higher equality levels and better job opportunities.
Financial markets? Who cares – they are essentially no longer connected to the well-being of the vast majority of Americans.
Cheers,
John M.
“Who cares about the stock markets?? Really.”
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There may be a result that affects the 99%. Things were pretty tough on those that suffered the great depression… not just those on Wall Street.
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The jobs and higher paying jobs are just a ‘short term gain’. The financial gods are not through ‘screwing with the Americans’.
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“Also, critically, wage rates have gone up for the first time in decades.”
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But they haven’t doubled. Taxes will have to increase to pay for the tax gifts to the 1%. Also with the increase in interest rates… if a mortgage rate goes from 1-1/2% to 3%. the mortgage rate also doubles and many people will lose their homes. Americans were better off three decades ago.
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“Moving manufacturing and high paid jobs back to the US and the rest of the western world will involve a lot of conflict but the payoff is higher equality levels and better job opportunities.”
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Look at GM and Mexico…
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“Financial markets? Who cares – they are essentially no longer connected to the well-being of the vast majority of Americans.”
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I sincerely hope you are being sarcastic.
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Dik