Friday, April 20, 2018

There are no winners in a trade war

This op-ed piece appeared in the April 19, 2018 issue of San Francisco Chronicle.
As the United States and China approach the brink of a trade war, it would be wise to cast aside the inflammatory rhetoric to weigh the cost and benefit of such a war to the American people.
President Trump accuses China of unfair trade practice leading to a huge trade surplus. It’s not that simple. As many have pointed out, the trade imbalance is distorted by attributing the value of all the components as coming from China — including those China purchased and included in the final product. For example, China’s content in an Apple iPhone is around 5 percent of the total value but is “credited” as the total value.
China’s export of household items and consumer goods represent good deals that the American public would be foolish to turn down. 
To impose a general tariff on goods from China would either force the Chinese seller to raise the prices or take the products elsewhere. In either case, the cost to the average American household would go up.
On the other hand, the Chinese consumer has choices and does not have to buy American. 
Take wine. It has taken 15 years to develop a customer following in China for California red wine. If that export were to be penalized by China’s reciprocating tariff, the market California worked hard to create would benefit winemakers in Australia, Chile and South Africa, all eagerly waiting to fill the void. 
Also, technology has been developing so rapidly that China now has intellectual property worth stealing and that will only increase with time. Raising tariffs will do nothing to influence the flow of intellectual property transfer — legal or not.
Accusing China of taking jobs from the United States rings hollow. The challenge is just the opposite: Jobs are going begging for lack of qualified candidates. China hasn’t been taking away low-paying jobs — America’s defective educational system is not preparing students for the future.
Aa trade war is would create an uneven playing field against America's own interest. President Trump is supposed to be too shrew a businessman for a move that makes no sense.
George Koo is a member of the Committee of 100.

Wednesday, April 18, 2018

Treating China as an adversary is not in America’s interest

This blog first appeared in Asia Times
A recent Gallup Poll reveals that favorable American public opinion on China has finally climbed over 50%, albeit just barely. This is a remarkable development in light of the continued barrage of negative sentiments from American politicians and pundits.
Politicians with national ambitions seem to need to attack China as part of their résumé. US Senator Elizabeth Warren is the latest example. It’s almost as if she took a trip to China just to criticize its human-rights record – and to earn a merit ribbon for her foreign-affairs credential.

Since she is supposed to be a progressive candidate of the people, she could have spent her visit learning how China has taken hundreds of million out of poverty and see if any of their techniques could be copied to help take Americans out of poverty—a domestic challenge in serious need of solutions.

A common failing among political leaders in Washington is their being quick to criticize China while oblivious to gross human-rights violations at home.
Then there are those pundits who make a living by demonizing China. A glaring case in point is Gordon Chang, author of The Coming Collapse of China, published in 2001. In the US, he continues to get invited to pontificate in public. Outside of the country, his prediction of the collapse of China is seen itself to have collapsed.
Peter Navarro has run wild using Chang’s playbook and has produced books and documentaries that distort China and its trade policies based on exaggerations and outright fabrications.
Navarro’s colleagues at the University of California at Irvine can attest that he has no background or expertise on China. Professionally trained economists around the world look on his amateurish China-related writings with disdain. Even so, Navarro has ridden his China-bashing rhetoric to the inner circle of the White House.
Now that we are faced with threats of mutual economic disruption via a trade war, it’s time to weigh the costs and benefits of treating China as an adversary based on factual information instead of rants and exaggerated tweets.

Why China joined the WTO

China entered the World Trade Organization in 2001, having begun the application process some 15 years earlier. At the time, the size of China’s economy was less than 5% of that of the US. As a developing country, China was entitled under WTO rules to certain measures to protect its manufacturing industries.
The motivation for China to enter the WTO was to force its domestic industries to improve their manufacturing practices so as to compete in the global market. Contrary to implications from President Donald Trump’s announcements, being a member of the WTO did not give China any license to game the system.
Not without irony, it is the White House that is violating the US membership in WTO by arbitrarily and unilaterally threatening to raise tariffs against China.
In those early days, China insisted that in certain industries, for foreign companies to enter the country, the foreign company had to form a joint venture of which it owned no more than 50% and had to share the technology necessary for the JV to succeed.
That was China’s strategy to catch up by learning from the West. US companies did not have to enter the China market if they found those conditions unacceptable.
General Motors for one was very glad that it did. GM made more money on Buicks sold in China through its 50:50 JV than its total sales in the US, and this delayed having to declare bankruptcy. The import duty on foreign-made cars also helped GM in China. Even today, it continues to enjoy a higher margin on cars made and sold in China than in the US.
Lest anyone get the impression that China’s economic success depended on transfer of American technology, the total US investment in China has been far less than factories set up there by Hong Kong and Taiwanese businesses. These ethnic-Chinese businesspeople entered mainland China at least a decade before US companies, and they were the ones that introduced good manufacturing practices to China.

A trade war puts the US at a disadvantage

If the Trump team insists on launching a tariff war, it needs to understand that America will be at a disadvantage, simply because China does not have to buy commodities such as soybeans, pork and wine from the US. Other countries are eager to sell to China. You can think of China as a buyer’s market.
In contrast, if the US were to stop buying daily-use consumer goods from China, the American household would have to pay a lot more for imports from elsewhere. You can think of the US as a seller’s market.
There is no question that membership in the WTO has greatly helped China’s rise economically, because if a factory can’t compete, it goes out of business. Consequently China is a much stronger country than it was two or three decades ago.
Reliance on stolen intellectual property might have been important in the past, but China is now generating significant IP of its own. In some areas, such as fifth-generation mobile communications, robotics in manufacturing and artificial intelligence, China is already among the world leaders.
Threatening a trade war and other combative posturing will not deter China’s goal to become the strongest economy in the world. At the same time, China does not interfere with American elections or join in Middle East conflicts.
China goes out of its way not to pose a security threat to the US. A quick comparison should amply illustrate this point: The US Navy holds “freedom of navigation” exercises in the South China Sea. China has declined to reciprocate by conducting such exercises in the Caribbean.
To treat China as an adversary is a misuse of the US federal budget, takes attention away from genuinely urgent issues in other parts of the world and gives up any opportunity to collaborate with China in ways that could spell real benefits for the American people.

Tuesday, April 3, 2018

Navarro's snake oil will sicken the world

Edited version first posted on Asia Times.

Why would a Harvard PhD economist and tenured college professor make a public ass of himself with ridiculous assertions about China that no self-respecting economist would claim ownership?

I posed the question to Professor John Graham, Peter Navarro’s colleague at University of California at Irvine Merage School of Business. He joined the faculty in 1989, the same year as Navarro. Now that Navarro has left to join the Trump Administration, Graham has taken over the course Navarro started on China.

“I am not sure I know why,” Graham said, “In sum, the three books he’s written about China are xenophobic trash. They contain some truths, but Navarro cherry picks the data to prove his points.  Ultimately it’s nothing but yellow journalism.”

He goes on to say, “Navarro has no first hand familiarity of China, doesn’t show any understanding of China and doesn’t speak Chinese. When asked how many times he’s been to China, he evades and doesn’t answer.”

A former UCI professor and colleague confirmed saying, “He generally avoided people who actually knew something about the country.”

Needed help to teach a course on China

After publishing several China-related books, Navarro decided to create his own China relations course, named "China and the Global Order." When Benjamin Leffel, a China specialist and Sociology Ph.D. student at UC Irvine, became aware of Navarro's writings, he reached out to Navarro and questioned his views.

The meeting led to Navarro asking Leffel to act as the counterweight in his China class. Leffel created most of the syllabus using respected academic material in China studies, Navarro's contribution being his own book and documentary.

Leffel wanted to throw out Navarro's materials, but Navarro did not agree. (After Navarro joined the Trump Administration, Leffel and Graham discarded his material from the syllabus.) Despite such a frontal disagreement, Navarro kept Leffel as his instructor and teaching assistant, who in fact did most of the teaching--and who exhaustively corrected the falsehoods and exaggerations found in Navarro's material.  

How would he summarize his experience working with Navarro, I asked Leffel. He said, "it was a tense but successful exercise in working with someone with radically different views, something we need now more than ever.”

Graham speculated that perhaps Navarro was motivated by TV exposure; his books and video documentary were calculated to get him media attention. That was an insightful observation.

Navarro, a Gordon Chang wannabe?

Indeed, Navarro may have taken a page from Gordon Chang’s playbook. Chang published the “Coming Collapse of China” in 2001. In view of China quadrupling the size of its economy since that publication, Chang should have eggs all over his face.

Instead Navarro can see that his friend became a media darling and is frequently interviewed about his views on China. The so called fake news people, those we would otherwise consider as mainstream media, know that they can always count on Chang to give a colorful and negative point of view about China.

Navarro has taken China bashing as the road to success to another level. He writes better than Chang, is more telegenic and has resources to tap that are not available to Chang. Nucor Foundation gave him a $1 million to turn his book into a documentary, which he then premiered from coast to coast.

Chang attended those premiers and celebrated with selfies taken with Navarro. Sometime between Chang’s book in 2001 and Navarro’s “Death by China” in 2011, they have become fast friends.

To celebrate their friendship, Navarro even wrote an article in defense of Chang called, “Revenge of Gordon Chang and the Coming Collapse of China.” The piece also appeared in National Interest on May 7, 2016.

When it comes to China, Navarro is not driven by facts and has no desire to write with authenticity and scholarship. To my knowledge, none of his papers on China have been published in peer reviewed, prestigious academic or professional journals.

He coauthored with Wilbur Ross an economic plan for the incoming Trump Administration. A public letter from 370 economists, including 19 Nobel laureates, labeled the plan “as immediate and unmitigated disaster.”

Despite such condemnation, Navarro now stands as the key economic whisperer to President Trump.

A five times loser in politics

In his earlier life, Navarro ran unsuccessfully for political office. He came within a whisker of becoming the mayor of San Diego, the second largest city of California. That was his first attempt running for public office and led the primary field with 38.2% of the votes.

In the general election runoff, it was his election to lose, and lose he did. He was nasty and vicious in attacking his opponent, Susan Golding, reducing her to tears in the last televised debate. The voters turned against Navarro.

He was to run for various offices in San Diego four more times. Each time his campaign tactic was nastier than the previous. Mudslinging was his standard procedure. Even his campaign manager called him a scoundrel.

When Navarro was first announced as joining the Trump Administration, San Diego Union Tribune, the local newspaper published a pointedly hostile review of his past association with the city (12/21/16). The headline read, “How many elections did Navarro lose?”

Charlie Cook, a nationally recognized political analyst, met Navarro once and vividly remembers that Navarro is one of the most obnoxious political candidates he has ever met. (Politico, 3/11/17)

In one election post mortem, Navarro admitted, “I don’t have any concerns at all about making stuff up about my opponent that isn’t exactly true.”

When asked why he began to pay attention to China. His reply was that it was when he noticed some of his students were losing jobs to China. Factory workers might lose jobs when plants shut down but MBA students don’t lose jobs to China. Nice try, Peter.

The public media is in part responsible for enabling a 5 time political loser to join the inner sanctum of Trump’s White House. When Navarro spouts nonsense, it’s the responsibility of the media to challenge his assertions and not give him a pass.

Now Navarro will be part of the team steering the US economic policy. It’s too early to tell whether he will be a mere transitory blip in history or an unmitigated disaster feared by many. If Trump really listens to him, only the Almighty can save us. Trump has just announced $60 billion worth of tariff duty on goods from China. That’s not an encouraging development.