Friday, January 27, 2017

Trump Blows it with China

As many of you know, I live in China. I read the Chinese news every day. I speak to nationalistic Chinese. I speak to [Communist] Party Members. The TPP was a shot against "over the bow" of China who (perhaps rightfully) is seeking dominance in many areas, especially in the pacific region. The TPP excluded China, and this pissed China off and directly threatened their dominance in trade. They have tried to come up with alternative arrangements to compete with the TPP. Yes, it was a trade deal, and "trade deals" have gotten a bad, and partly undeserved, partly deserved, reputation. But this deal was very different, especially as it gave the USA some added leverage over China.

Trump has labeled China part of the problem with the loss of jobs. He is not entirely incorrect, although you can not blame poor people for wanting to work. He is clearly not entirely correct either. [But that is to much for this post.]

So Trump canceled the TPP. The Chinese could not be more happy with this. The TPP was a threat to their dominance, trade, etc. He did more with that Executive Order to hurt our trade deficit in general and with China then he can imagine or we want to know.

Let me go further. I have watched the present government of China. These are sharp people, who are very nationalistic and determined. While they have their defects and criticisms, these are not in areas that will diminish their capacity to deal with America. In fact, they will prove very effective in this regard. They do not want problems with America, but are very defensive as a country, and will not hesitate to respond to perceived provocations of any kind. Note, the people of China virtually revere America and Americans, and this division will really be a waste of goodwill. But then again, Trump excels at division.

In a trade war, they [China] will out-think, out-maneuver, and out-last Trump and the Congress. They will think nothing of letting their own economy suffer for 10 years, just to win a trade war, especially so long as they can tell their people it is Trump's fault (and probably Japan's as well - Japan is their bogeyman of choice). Unlike Congress, which is concerned about midterm elections every two years, and a presidential election every four years, the Chinese think 30 years down the line (as Israel used to do).

The Chinese economy is not in the strong shape the Chinese government pretends. Remember, financial statistics, unlike in America, are controlled by the government, which manipulates them for political means. The end result is that there is tremendous internal pressure to let the Chinese Yuan weaken. This means Chinese goods become cheaper, and more countries buy from China. China has resisted this internal pressure because of international pressure, especially from America, whom they have regarded as a key economic ally. When Trump alters that relationship, watch the Chinese Yuan weaken, and our balance of trade with China worsen further.

Let me add that if people do not think China allows USA stores, brands, and products, they are very wrong, I can assure you there is a Starbucks on every street and a McDonalds in every shopping center. Every foreign luxury brand is represented, from Cartier to Louis Vuitton and non-luxury brands from Coca Cola to Red Bull. If you can afford it, and even if you can't, rest assured it is sold in China. The demand for imported wine in China is actually threatening to cause a world wide wine shortage. It is just unfair to pretend that China is closed to foreign goods and companies, although they do admittedly have unfair protectionist policies. (I live one block away from a Walmart).

Furthermore, Trump has needlessly antagonized China with the Taiwan issue in a way no Republican or Democrat has ever done, and in a way which was morally questionable and clearly irresponsible. Let me be very clear. The Chinese regard, with some historical legitimacy, Taiwan to be part of China. Many Taiwanese make the same claim. If you want trouble in China, or a fight with some Chinese, just claim Taiwan is or should be an independent sovereign country. When Trump took a congratulatory phone call from the leader of Taiwan in the capacity that Tsai Ing-wen, President of Taiwan, was a "head of state," that is exactly the message he sent to all of China. And they received the message loud and clear and did not like it.

Now, North Korea is one of the biggest threats to world peace. The Doomsday Clock was just moved today 1/2 minute closer to annihilation, and North Korea was a major factor in that (as was global warming - again a Trump catastrophe).

Trump has said that he will seek Chinese help with the North Korea issue. Clearly, only China has [limited] leverage on North Korea. China backed US sanctions, for example, on North Korea in the Security Council. Can one imagine the response when Trump calls China, and says "Let's be best buds and work together on this problem [of North Korea]?" I know what I would do if I were Xi Jinping (leader of China).

By the way, although I am in Tokyo at the moment, let me say, from the City of Shenzhen, Peoples Republic of China, we wish you all a very happy, prosperous, and healthy Chinese New Year (which is today).

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