Sunday, November 12, 2017

Will the warmth of the Trump-Xi summit linger?

An edited version of this blog first posted on Asia Times.

President Donald Trump’s 2-days+ visit to Beijing received state-visit+ treatment as promised and he showed a video of his granddaughter singing a popular song from China in Chinese, which President Xi Jinping applauded with a rating of A+. It was by all accounts quite a felicitous, triple plus event.

Showing his cute granddaughter singing and reciting poetry in Chinese was a masterful touch. The Chinese loved seeing foreigners adopt Chinese language and culture. Even awkward novice attempts were warmly encouraged and welcomed.

Contrary to his reputation for unpredictability, Trump had no surprises up his sleeve. His public posture was that of a statesman and diplomat. He most likely dispelled fears and exceeded expectations of many.

The twelve+ minute of the press conference that followed their private conversation was warm, positive and emphasized collaboration and cooperation. On issues where they differ, their agreeing to disagree seemed respectful and amicable.

Of course, whether such a warm and forward-looking beginning will lead to “progress for the benefit of the peoples of both countries,” to paraphrase Trump, depends on follow-up meetings between negotiating teams delegated by their respective leaders.

If the ensuing negotiations by the respective groups follow the spirit of seeking to build from common interests, progress would be made. But already, observers in Washington are already claiming that once Trump returns to the Whitehouse, advisors from the confrontational school will resume their places with the same old tired arguments in favor of treating China as an adversary. It will be business as usual; nothing changes.

From the press conference, Trump did state that China and the U.S. would join together to fight global terrorism. This could be a significant shift in attitude. In past administrations, the American position fell more along the lines that “my terrorists are your terrorists but your terrorists might not be mine, subject to case by case review.”

Mindful of the opioid overdose epidemic in the U.S., both leaders also agreed to cooperate in the effort to stop trafficking of fentanyl. Fentanyl is a potent form of synthetic opioid and a leading cause of death by overdose in the U.S. China agreed to broaden the control of precursors to fentanyl and to halt the illegal manufacturing of the drug inside China.

China in turn had asked for American cooperation to facilitate the repatriation of fugitives now residing in the U.S. Some exchange of information and joint investigation had already taken place. Lacking is a bilateral agreement that would facilitate extradition and act as deterrent for other fugitives. Trump offered his support for closer collaboration.

These are positive, relatively easy undertakings that both countries can agree to work together for desired outcomes. Other issues were not as easy and showed by the difference in which the two leaders addressed them.

Neither directly talked about the South China Sea but Xi merely said that the Pacific was big enough for both countries. Both leaders agreed to increase more military meetings and exchanges as a way of lessening tension. To my knowledge, Xi did not offer to initiate exercise of freedom of navigation (FON) in the Caribbean as quid pro quo for American warships in SCS.

Trump’s public comments at the press conference in regard to North Korea was tactful and did not insist, as he had in many other occasions, that China take care of the denuclearization of North Korea for America. This time, he simply allowed every nation must apply tougher sanction against North Korea in order to bring North Korea to heel. Xi simply remarked that yes, China will impose sanctions consistent with the UN guidelines; he also believed that negotiations must accompany sanctions.

As I have written previously, the Clinton Administration has shown that negotiations could work to resolve the crisis. Sanctions and threats had simply raised tensions and had been nothing but a dead end street. Xi of course was too diplomatic to publicly point this out to Trump.

Unfair or uneven trade was another knotty issue that has not seen any daylight. China taking unfair advantage of the U.S. open market has been Trump’s position, as had been that of his predecessors. At the press conference, Trump’s diplomatic position was that “it’s not China fault for taking advantage our open market.”

Xi promised to do more to open China’s market but he also pointed out that China could buy a lot more from the U.S. if the U.S. weren’t so restrictive on export of technology based products. The idea that high tech product for civilian use could potentially have military applications have throttled export sales to China.

It is disappointing that the debate on trade with China has not changed much for at least the last three administrations. Many of the assumptions underlying this debate had been invalid or erroneous or politically motivated by domestic politics in the U.S.

Here is a summary of arguments relevant to the trade issue.

(1)        Low cost imports from China are not harmful to American interests. On the contrary, it’s beneficial because American consumers enjoy lower prices. Jobs are not lost because this kind of manufacturing could no longer be done competitively in the U.S.

(2)        Nothing in the principles of economics demand balance in the calculation of bilateral trade. So long as trade is not based on predatory practices such as hidden subsidies, then trade is fair and market based.

(3)        Bilateral trade statistics have been biased by the way import value is calculated. Popular example used to illustrate the distorting is the iPhone. Value added by the assembly work done in China represents less than 10% of the value of the final product. Yet the entire value of phone is attributed to China as the country of origin.

(4)        Around 60% of China’s exports to America are made by American subsidiaries and joint ventures in China. China gets the blame for the trade surplus but it’s the American companies that pocket the revenue.

(5)        Trade in services is overwhelmingly in favor of the U.S., around 4 times greater that China’s export of services to the U.S. and is the sector that is fastest growing.

Taken all into consideration, the so-called trade imbalance is much less than has been portrayed.

Encouraging inbound investments from China would be another remedy to achieving balance of payments, but the potential is strangely and ironically is under realized. With rising labor cost and land acquisition cost in China, Chinese companies are increasingly looking to locate manufacturing plants in the U.S. Closer proximity to the market and lower energy cost can make locating in the U.S. economically appealing.

Nearly every governor and many city mayors in America understand the value of Chinese investments in creating jobs and increasing the tax base. Many make regular visits to China to entice Chinese companies to locating in their neighborhood. Yet the federal government and the U.S. Congress seems intent on raising the barrier to Chinese investments by strengthening the mandate of the Committee on Foreign Investment in the U.S. (CFIUS).

Even without the anticipated revision by Congress that would expand the jurisdiction and expand the types of investments that would be subject to review, investments from China are already more likely to be scrutinized by CFIUS than from any other country and also are more likely to be disapproved. It seems that Chinese investments are more dangerous to national security than from any other country. And the amorphous danger outweighs the economic benefits.

China’s economy will soon surpass the U.S. To discourage Chinese companies from the largest source of capital to invest in the U.S. is truly against America’s national interests. Xenophobia and China bashing has real costs.

When Trump returns from his long journey to Asia, it will be interesting to see if the upbeat feelings generated in the private meeting of the two leaders in Forbidden City will lead to a new direction for the bilateral relations--one that represents a win for the peoples of both countries. Or, we can check off another opportunity lost as Washington goes back to China bashing as usual.

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