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The US-China Trade War 2 – The Real Truth Behind Trump’s Tariffs

March 29, 2018October 9, 2018 FIRE in Thailand 0 Comments

Equality and Tariffs

Let’s take a look at the undeniable truth behind Trump’s tariffs and why many people in Western countries don’t understand the real issues.

I believe in trade equality, but many countries in Asia, such as China and Thailand, have policies targeting foreign companies from the highest levels of government that are much more restrictive than the equivalent policies in Western countries.

Let’s say a US company wants to set up a factory in China. The US company will have to partner with a Chinese company (most likely connected to the government) and won’t be able to own a majority stake in their own factory. The Chinese partner will make sure the US technology used in the manufacturing process and/or final product is transferred to them.

But if a Chinese company wants to set-up shop in the US, they can own everything outright and the US government doesn’t interfere.

Why are the rules not the same? Trade policy should be equal and Asia has gotten away with unfair policies for too long.

Why isn’t there a backlash or boycott of companies like GM that willingly give China their intellectual property in return for access to Chinese markets, cheap labor, and short-term profits? China is now manufacturing cars that look just like GM’s that are probably higher quality. Was that worth it GM?

Why didn’t American consumers punish Apple when it appeased the Chinese government by removing VPN’s from the app store or when it moved iCloud encryption keys from the US to China? VPN’s are the only way average Chinese citizens can access uncensored information outside of China. Former Apple security employees have criticized moving encryption keys to such a repressive regime.

It’s no surprise the only backlash by US consumers and the media is against higher prices. They defend cheap prices for consumer goods while being blind to the reality of what’s really going on. To rally public opinion, all the media has to say is prices will go up and everyone follows along. The average consumer doesn’t care about insignificant things such as the transfer of US technology and the abuses that are required to make those cheap products. If nothing is done I would like to see what those same consumers say when the race to the bottom hits them.

I respect Elon Musk for taking a stand and not giving into the Chinese promise of market access and huge profits if he gave them state-of-the-art American electric vehicle technology. I’m sure other CEO’s would have. Has anyone noticed how negative the media is towards Tesla nowadays?

You know something has to be done when even CNN reports that China steals up to $600 billion of American intellectual property every year! Not that I’m a Steve Bannon fan, but he’s right when he says screw Wall Street because US corporations willingly give into and appease China for short-term profits. If Wall Street can’t police itself (and when has it been able to?) because it’s blinded by profit, the government needs to act even if tariffs are unpopular.

When JP Morgan CEO Jamie Dimon, a former Democrat you would assume is on Wall Street’s side says, “Tariﬀs and non-tariﬀ barriers to trade are often not fair; intellectual property is frequently stolen; and the rights to invest in and own companies in some countries, in many cases, are not equal…When the U.S. administration talks about ‘free” and “fair,’ it essentially means the same on all counts…This is not what has existed. It is not unreasonable for the United States to press ahead for more equivalency,” of course CNBC’s Cramer makes it into a political issue rather than looking objectively at the facts. Did Cramer and friends have an intellectual debate on the pros and cons of some of the possible solutions Dimon presented in his 40-page letter to shareholders? You already know the answer. They just belittled him and talked about when he’s going to step down. Unfortunately, that’s about all anyone is going to get from the mainstream media on tariffs.

Why Obama Didn’t Impose Tariffs

Obama

Recently, a former deputy US trade representative under Obama said that China is the biggest trade cheater and the tariffs are a good start to deal with the problem. So, the question is, why didn’t the Obama administration impose tariffs when they were well aware of the problem?

They didn’t want to do something unpopular right before a difficult election. Obama couldn’t risk upsetting his powerful globalization supporters along with every trade ally the US has. Four year terms are so short compared to economic cycles that governments mainly focus on policies that are popular with their voters while the opposition attempts to block everything, rather than everyone doing what actually needs to be done. Just like in everyday lives, something that’s good for you probably isn’t very fun or healthy, and could even be painful.

Obama’s government was paralyzed and couldn’t do what needed to be done because getting re-elected was more important than doing what’s right. I’m assuming that no one in their right mind would say that giving away US intellectual property to China just to manufacture goods there cheaply is the right thing to do.

If the previous government had a much longer term, they would have been able to do what’s right and impose tariffs without worrying about getting re-elected in a few years. It’s only when free trade went too far and became an emotional issue that people voted for change.

Obama’s inaction is also no surprise when you realize the enormous pressure governments are under to keep the economy booming. The American Chamber of Commerce said, “Enjoy it, and don’t screw it up,” when referring to the sweet spot the economy is currently in. If a period of full employment, low inflation, and low-interest rates is not a good time to endure the pain of a necessary trade war to correct trade imbalances and intellectual property theft, when is the best time – when we’re in a recession and millions are out of work? Or should we continue to ignore those economically lethal problems like Obama did?

Instead of saying don’t screw up the economy in the short-term, I would rather say don’t screw up the entire country in the long-term. Is our tunnel vision so myopic that we must push for more and more growth and cheaper and cheaper products at all costs, even when we are already in the middle of unprecedented synchronized global growth?

Right after Trump was elected the media was flooded with pro-globalization articles. It was obvious powerful players were trying to keep the status-quo as long as possible. I remember thinking many of those articles were probably pre-written and ready to send out at a moments notice whenever someone said anything negative about free trade.

The Truth Comes Out

Other governments are only now starting to agree with Trump.

A New York Times article sheds some light on the real situation and also confirms US officials have long known about Chinese dumping. It turns out that China was dumping steel and aluminum into the US through Canada and the EU by using a process called transshipping. That’s a very different tune from all the articles that came out when Trump’s tariffs were first announced. Originally, all the major media sources were saying how Canada and the EU are going to be severely affected by a trade war with the US, but now that the dust has settled and the truth has come out, everything Trump said about Chinese dumping is true and now Canada and the EU are working on ways to stop cheap Chinese imports that are actually destined for the US.

In fact, Canadian Prime Minister Justin Trudeau was even warned without its own safeguards Canada could be a victim of Chinese dumping now that the US is limiting Chinese imports! Amazing how the story has evolved!

I’m not a conspiracy theorist, but I do wonder why it took so long for the truth to come out…

China Concedes

Updated April 9, 2018

Chinese President Xi announced China is committed to opening its economy and will protect the intellectual property of foreign enterprises. He also talked about globalization being inclusive, balanced, and beneficial to all. He referred to China as the benevolent leader of the global economy, which is a complete reversal of their previous policies. We will come back to benevolent leaders later in Part 5 of our series.

How much of his speech is just lip service needs to be seen, but it appears China has acknowledged the reasons behind Trump’s tariffs and is willing to concede on the most important issues. Time will tell though because intellectual property enforcement is a grey area in Asia with crackdowns on counterfeit goods often being just for show. Government policy and what actually happens on the ground can be two different things, but the trade talks are going in the right direction. My prediction is cooler heads will prevail and a global trade war will be prevented, as long as Xi’s speech turns into reality.

More Concessions From China

Updated May 20, 2018

After a whirlwind of talks in Washington, the US and China have both pledged not to engage in an all-out trade war. China has agreed to significantly increase US imports, although an exact dollar value hasn’t been released. Over the past few months, Trump has brought China to the negotiating table by fighting fire with fire, which is the only thing China responds to. When Trump first announced tariffs, China retaliated by slapping its own tariffs on US soybeans in an attempt to hurt Trump’s core supporters. In a move whose purpose was cleverly disguised, the US blocked Chinese phone manufacturer ZTE from using American components for seven years for violating trade sanctions against Iran. That effectively put ZTE out of business and 70,000 Chinese people out of work. A week later, China removed tariffs on soybeans and came to Washington to offer concessions.

A lot of people in the media have been critical of Trump’s tariffs and foreign policy. Trump is often seen as unstable and inconsistent because of his rants on Twitter. What people don’t see is the big picture. Trump is so unorthodox compared to other politicians with his back-and-forth negotiating tactics and direct communication style, many people take the easy road and lash out when they don’t understand what is going on behind the scenes. And what people also don’t realize is many countries such as China only offer concessions when they are threatened. If a country like China is not fearful, they will continue to take advantage of trade partners indefinitely.

The same approach is needed with North Korea. Previous governments along with the United Nations tried negotiating and applying sanctions for decades, but North Korea still developed a fully capable nuclear weapons program. After just a few months of ‘Rocket Man’ tweets and believable threats of total annihilation by US nuclear attack, Kim Jong-un invited Western media to observe the dismantling of his nuclear program. Trump will be the first US president in history to meet with a leader of North Korea and may even win a Nobel Peace Prize.

Trump Gets The Job Done

Whether you agree with Trump’s tactics or not, his results speak for themselves. Countries like China and North Korea do not respond to soft ideologies that advocate ‘everyone gets a medal’ or ‘we can’t risk offending any group’ that now permeate throughout politically correct Western countries. Trump has only been in office for a year a half and he’s already succeeded in rebalancing trade with China and getting North Korea to dismantle its nuclear program – issues every other politician has been incapable of solving. It is time the media woke up and understood what it really takes to govern The United States in the 21st century.

Click here to continue to Part 3

Also see:

Trade Wars Are Easy To Win: Thai Style