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William Jones: Repairing the Frayed US-China Relationship


By William Jones    Source: China Focus    Published: 2018-3-30

The problems affecting the US-China trade relationship involve both economic and geopolitical issues, which really are separate in nature.

What Happened with `America First’?

First, on the economic side. The US for several decades now has been in the process of “outsourcing” most of its basic manufacturing requirements to developing countries, including China, in order to utilize the cheap labor available there. This has led to shutdowns in most of our industrial states in the Northeast and the Midwest. Workers were laid off and little was done to modernize those industries or to retrain those workers. Over the course of the last two or three decades, blue collar America has suffered greatly, workers have lost their skills, and young workers have been largely relegated to working at MacDonald’s or Walmart. There are some exceptions to this in computers and IT, but generally US industry has been devastated. The victory of Donald Trump in the last election was largely due to the growing dissatisfaction of blue collar America with the US political elite ignoring this problem.

Trump’s “America First” is primarily aimed at correcting this problem. It is aimed at creating jobs in manufacturing for American workers, improving the dilapidated infrastructure, and restoring the sense that the government is working for the benefit of its people. The problem with the Trump policy, however, is that it is based on the mistaken notion that private industry will take care of these problems. What it ignores is the fact that the Federal government has to take the initiative, and institute measures for such a program to be financed or to undertake the financing itself. This may mean a bigger deficit in the short run, but the president would most probably get Democratic backing for such a program. But Republican prejudices about government spending, which Trump seems to share, have prevented such a program being implemented.

Tariff and tax policies, if used prudently, could have alleviated some of the changes that would have inevitably occurred over the last few decades with the emergence of new industrial nations, had it been initiated at an early stage in the process. But management – and Congress – really did very little to deal with the problem of industrial upgrading, and American workers suffered as a result.

The draconian measures being proposed now by the Trump administration, if implemented, would be disastrous for the American, as well as the world economy. Even if this is being done by the president, as I suppose it is, as a part of his typical “hard-ball” negotiating style, it could have unintended consequences, not wished by the president.

China Got Bitten by the Rapid Growth in Science and Technology?

The other aspect of the trade debate is of a geopolitical nature. Certain sections of the US political elite have been totally caught off guard by the rapid growth of China in the field of science and technology. In many fields of high-tech, such as 5G and AI, China probably has taken, or will soon take the lead. And those who ascribe to the idea that “America First” brooks no competitors in the advanced fields of science and technology, will do anything to sabotage China’s advances. In their desire to be Number One, they would not shrink from a policy which can only be characterized as “technological apartheid”. And while the president does not seem to share this view, a number of people in his administration do, including some who are involved in the trade area. But, of course, no nation would be willing to accede to such a policy, which would undermine the very basis for their further development.

Here again, while the US still maintains a strong lead in many areas of science and technology, this field has also atrophied due to a lack of any significant “science driver” program similar to Kennedy’s Apollo program. Reagan’s SDI, in the form he envisioned it, as a shared program with the Soviet Union, could have been such a driver. But the idea of the use of more exotic technologies like laser, EMP technology and the like, as well as Reagan’s commitment to sharing any of this with the former Soviet Union was strongly opposed by some of his neo-conservative advisers, who preferred a more “conventional” approach, and the program gradually declined from what had been originally envisioned.

Here again the prejudice against strong government support to major `science driver’ programs has allowed the science capability of the US to languish. None of this has to do with China or with trade per se, and yet China is being victimized for a problem that our own ham-fisted elites have caused.

In dealing with this issue, both aspects, the economic and the geopolitical, have to be taken into consideration. Restoring the trade balance will be difficult to the extent that the US maintains strict limitations – or even increases them – on high tech exports to China, China’s ability to buy more from America has its limits. After all, how many soybeans and Boeing airplanes can China utilize?

The measures promised at the recent NPC meeting – facilitating investment by more US firms and eliminating the technology transfer requirements – will be important if they are fully implemented. US business is by and large opposed to the proposed tariffs and their arguments would be strengthened if some of their own concerns were addressed.

Multiple Fields Where China and US Can Find Cooperation

Secondly, there is also the possibility for China to get involved in helping finance Trump’s infrastructure program. Because of the lack of financing, it is really going nowhere. China has a problem in direct investment in infrastructure in the US, particularly with regard to transport, because of the alleged security concerns.  But if an infrastructure bank or infrastructure fund were set-up with private US participation, it could be a platform for Chinese investment at a higher rate than what China is getting with T-bills and would avoid the complaints about Chinese “control” of US infrastructure. And there are bankers here who would be interested in helping with that.

Thirdly, making it easier for US firms to invest and participate in the Belt and Road Initiative would help take that off the table as an irritant in US-China relations, and could make it into a showcase piece of the US-China relationship. Many firms, like Caterpillar, GE, and Honeywell are already involved – and quite happy with the results.

On the high-tech front, it would be useful to find those projects where the US and China can work together on the “frontiers of science”. Space would be an obvious field, but the limitations placed by Congress make that difficult for the time being, at least in the field of human space exploration. But if major projects could be designed on a collaborative basis in the field of medicine or high-energy physics, as for instance is being done in the area of gravitational waves, it would also help allay concerns in this area and help restrain those who wish to impede China’s technological advances. If a US-China joint program finds a cure for cancer, who here would complain about China’s technological prowess? Just a few ideas for consideration on this very important subject.

William Jones is Non-resident Senior Fellow of Chongyang Institute for Financial Studies, Renmin University of China.

Key Words: US-China   trade relationship   William Jones  

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