Month: April 2018

China flexes its muscle in the Pacific

Posted on by j.giglio

Just as Imperial Japan did in the 1930s, China is developing and asserting its own version of the Monroe Doctrine in Asia, so it may enjoy the same continental hegemony America does. The new reality is reflected in the South China Sea. China maintains that it has sovereignty over almost all of the South China Sea. The United States should respond by fostering closer ties with its allies in the region.

Beijing continues to militarize artificial islands in the South China Sea. It was reported earlier this month that China had installed antiship cruise missiles and surfaceto- air missile systems for purely defensive reasons on fortified outposts in the hotly contested waters of the South China Sea. Taiwan, the Philippines, Vietnam, Malaysia and Brunei are also contesting at least part of the chain of islands, reefs and their surrounding waters in the South China Sea.

Each year, a third of the world’s shipping passes through the South China Sea, carrying around $3.4 trillion in trade. In 2016, 21 percent of all global trade passed through it. Any conflict in the South China Sea would likely have serious consequences for global commerce.

Following the logic of the Monroe Doctrine, which opposed European colonialism in the Americas, Communist Party leadership believes China’s security would be better served by muscling the American military out of the Asia-Pacific region.

After all, the Chinese remember what happened in the century between the First Opium War (1839-1842) and the end of World War II, when the United States and European powers took advantage of a weak China. The current generation of Chinese Communist Party leaders are so bitter about the 100 years of humiliation that they can taste it.

In 1823, President James Monroe, on the occasion of his annual message to Congress, wrote “the American continents, by the free and independent condition which they have assumed and maintain, are henceforth not to be considered as subjects for future colonization by any European powers.”

The United States put European nations on notice that it would consider any foreign challenge to the sovereignty of existing American nations an unfriendly act.

The Monroe Doctrine, sweeping in scope, proclaiming hegemony over an entire hemisphere, was an expression of a growing spirit of nationalism in the United States in the 1820s. In short, it warned everybody to stay out of the Americas; this is a United States preserve.

China’s assertiveness in the South China Sea echoes the Monroe Doctrine. It wants to dominate Asia the way the United States dominates the Western Hemisphere. Why should anyone expect China to act differently than the United States?

China’s actions are not catching the United States at its best. The U. S. has been busy chasing bad guys in the Greater Middle East. Is it too late to contain and deter China as it did with the Soviet Union in the Cold War? Or is China just too big and powerful? It should be remembered that the United States did not have deep economic relationships with the Soviet Union, so Cold War-era policymakers did not have to contend with powerful American multinational corporations’ economic interests as they managed foreign relations. Lawmakers in Washington, special interest groups, and the business elite eat at the same table.

China’s moves in the South China Sea can be regarded as a threat. But it is also represents an opportunity to deepen relationships with American allies in Asia and leverage their resources to serve as an effective counterweight to China’s moves before China absorbs these countries into its economic orbit. The President may want to reconsider his decision to withdraw the United States from leadership of the Trans-Pacific Partnership. Keeping America secure means having partners and allies to magnify US power and extend US influence.

This approach merits consideration as long as the United States can avoid its usual perfection of getting things wrong when it comes to foreign affairs.

Originally Published: April 19, 2018

 

 

Trade tariff battle will not lead to any long-term damage

Posted on by j.giglio

President Trump’s views on trade have never been a secret. Trump finally delivered on his campaign promises by announcing unilateral tariffs on steel and aluminum imports coupled with the imposition of about $60 billion in new tariffs on China. The moves generated frightening headlines, with experts predicting they will have dire consequences for the global trading system, but such claims are exaggerated.

Trade is a competitive game and every country plays hardball. The Trump policy is supposedly designed to counter a series of unfair Chinese trade practices, such as its longstanding restrictions on American companies, the forced transfer of American intellectual property, and many cases of patent and trademark infringement. The administration has demanded that China shave $100 billion off its record $375 billion trade surplus with the United States.

U.S. firms have been unable to sell advanced goods and services to China’s rapidly expanding middle class. It is widely acknowledged that in many market segments China requires foreign firms to share proprietary technology as a  condition of market access. The firms provide innovation and their Chinese counterparts imitate foreign design.

Many of the president’s media antagonists say these actions threaten to unleash a trade war; that the  moves appease the resident’s Rust Belt constituency but are unlikely to end America’s trade deficits or bring back manufacturing jobs. They also warn of rising consumer prices and are convinced that the U.S. would lose a trade war with the emerging market giant.

Yet it is unclear whether the president and the economic  nationalists in his administration will govern as tough as they talk. It is quite possible that actual tariffs will fall short of  the threats. For example, the tensions with American allies generated by the steel and aluminum tariffs are likely to be resolved through cometic concessions.

Following the president’s tariff announcement, China initially targeted tit-for-tat tariffs to put pressure on politically sensitive states that voted for Trump, hitting him where it hurts the most ahead of mid-term elections later this year. China’s Ministry of Commerce quickly said that it would impose a 15 percent tariff on $3 billion worth of American fruit, pork, wine, seamless steel pipes and more than 100 other products that represent about 2 percent of total American exports to China.

But soon after all this huffing and puffing, China’s Premier Li Keqiang, at a conference that included global chief executive officers at the Great Hall of the People in Beijing, pledged to open markets to avert a trade war with the United States and to ease access for American businesses. Also, China offered to buy more American made semiconductors and allow foreign financial firms to take majority stakes in Chinese securities firms.

Then on April 1, the Chinese Finance Ministry said the previously announced tariffs will take effect immediately.

China is reliant on foreign trade for growth and job creation and needs to retain access to the U.S. market. The country certainly doesn’t want to engage in a trade  war with its best customer. China’s exports to the U.S. are equal to about 4.5 percent of its GDP. In contrast, U.S. exports to China are equal to about two-thirds of 1 percent of GDP. Although less important to the economy than it was, trade accounts for almost 40 percent of Chinese GDP versus less than 30 percent in the U.S.

America’s decline relative to other countries is an old story. First the Russians were going to leave the U.S. in the dust, then the Japanese. But consider the strong and intrinsic advantages America enjoys. They include being functionally energy and agriculturally independent, having more favorable demographics and a consensual society. Drug dealers still prefer suitcases full of dollars, not yuan, and global investors still seek Treasury bonds as a safe haven in times of crisis.

President Trump’s trade moves may temporarily roil U.S. markets, but there is no need to panic or bet against the United States.

Originally Published: Apr 7, 2018