By William Jones Source: Global Times Published: 2019-8-6
US President Donald Trump's rash measure of imposing a new 10 percent tariff on Chinese goods on top of the 25 percent already levied threatens to hurt the US economy. It may also create a major blowout in international financial markets. In addition, this attempt to play hardball with the Chinese side in these all too important discussions could totally poison the atmosphere for amicable talks with China on any issue in the future.
It is highly unlikely that China will buckle to such high-handed tactics. China is proud of the accomplishments it has made during the last 40 years of reform and opening-up. But the attempt by the US to force China to entirely abandon its successful industrial policy poses an existential threat to the world's second largest economy.
For the real reason the US economy is in such dire straits - in contrast to what the president seems to believe, the US economy today is not a "success story" - is not because of trade with China. For decades now, we have been living off the unique role of the US dollar, which had become "good as gold" in the eyes of the world when former president Richard Nixon took the US off the gold standard, and we have simply decided to purchase cheaply from the poorer low-wage countries of the world, rather than producing things ourselves, thus abandoning our industries, our infrastructure, and our workers and farmers.
Look at the state of our cities, roads, and highways. They are a disaster. And how are tariffs on China going to solve that problem? Look at Detroit. It's coming back. But why? Because China has invested heavily in its future. By starting a trade war, do you think those Chinese investors are going to remain bullish on the US and new Chinese investment continue to come to the US? That is highly unlikely.
Without a doubt, China will suffer because of the tariffs. But China and its people have learned to survive in adverse circumstances, particularly during the period prior to the reform and opening-up when it was shunned by the rest of the world. But the tariffs will also wreak havoc on the US economy. In a polarized economy in which 10 percent of the wealthiest earns more than the lower 80 percent; that lower 80 percent which purchases most of its goods at places like Walmart and Target, will see their budgets bloat. It will be a sizeable tax on the US consumer, who will ultimately have to pay for the president's new tariffs.
More ominous will be the effect the subsequent turmoil will have on the US - and world - financial markets. Investors breathed a sigh of relief when the latest trade talks were announced. Now they may head for the exits. And contrary to what the president seems to believe, the financial markets are highly leveraged. The New York-London financial system has become a virtual casino, creating new - and unpayable - debt out of thin air. The slightest blip can send markets tumbling, making the 2008 financial blowout look like child's play. The Smoot-Hawley Tariff Act contributed largely to the last Great Depression. One hopes that Trump does not turn out to be another Herbert Hoover who took the fall for the biggest economic malaise in modern times.
And it has become something of a truism that the relationship between China and the US is the most important relationship in the world, regardless of the perspective you are viewing it from - economically, socially, politically or militarily. Does the president really want to throw a monkey-wrench into that relationship and poison the well for further discussions on issues of strategic and economic importance? The Chinese have proven themselves to be very patient, but that patience also has a limit. You cannot treat them as a competitor in a real estate deal, who might be blackballed into submission. China is in fact a real world power.
And the economic bullying together with the various machinations that US NGOs like the National Endowment for Democracy are conducting in places like Hong Kong, promoting something similar to a color revolution and in which the Secretary of State Mike Pompeo has also weighed in, can only create the view among the 1.4 billion Chinese that the US is in fact their enemy.
If the president really wants to rebuild the flagging US economy, its industries, infrastructure, and manufacturing capabilities, he must return to the orientation that characterized the US in its more productive days. Let's move forward with the Moon to Mars program of NASA as outlined in the Artemis program. Bring back the spirit of progress and a belief in new scientific achievements. And let's do it together with China. They have landed where no one else has, on the far side of the moon, and they are willing to share the knowledge they have gained in this endeavor. And let's get our roads, our highways and our rail systems back in shape. And in this endeavor, China can help as well. Follow Hamilton's lead and create an infrastructure bank or infrastructure fund to promote investment in infrastructure. I'll bet you can bring Chinese investment into such an undertaking. They have created more infrastructure than any other country in the world at this point, and I'm sure they would be willing to share their knowledge.
But if the president continues in the direction he is heading with the new tariffs to be imposed on September 1, we are looking at tremendous turmoil for the foreseeable future and the danger of a greater conflict ahead between the two most powerful countries in the world. The president claims that the tariffs are bringing in lots of money, but none of this is going into the pockets of ordinary Americans, who will in fact pay more for everything they purchase. And while we still have some months to go, I'm sure that Trump does not want to end up as the Grinch who stole Christmas for millions of Americans.
William Jones is the Washington Bureau Chief for Executive Intelligence Review and a non-resident senior fellow of the Chongyang Institute for Financial Studies, Renmin University of China.