Thursday, August 15, 2019

Trump's Self-Made China Mess

American relations with China, a centerpiece of President Trump’s foreign policy, are unraveling. Trump’s China policy has been erratic, inconsistent, and working towards cross-purposes at various times. After three years, the effect of Mr. Trump’s foreign policy seems to be coming home to roost as China gears up to quell democratic protests in Hong Kong while simultaneously nearing endgame in the trade war against the United States.

Even though China figured prominently as a foil in Donald Trump’s 2016 presidential campaign, the new president initially reached out to the Chinese government for help in dealing with North Korea’s Kim Jong Un, even as China and the US began trade talks. Chinese President Xi Jinping was reluctant to help Trump rein in the Chinese client state. This may be partly because the Chinese see Trump’s overtures to Kim as an attempt to take North Korea out of China’s sphere of influence.

In 2018, as the US and North Korea were experiencing a détente, Trump was beginning the tariff war against China and myriad of other nations. The trade war began with US tariffs on washing machines and solar panels in March and ramped up in April with tariffs on steel and aluminum imports. The first rounds of tariffs did not single out China, but the Chinese government responded with 25 percent tariffs on 128 US goods. Trump fired back with a 25 percent tariff on $50 billion of Chinese imports. The cycle has continued throughout the 16 months since.

Fast forward to August 2019 when pro-democracy activists began protesting Chinese rule in Hong Kong. As the protesters waved American flags and sang the “Star-Spangled Banner,” the Trump Administration seemed to be in disarray. Many members of a party that is making the argument against American socialism a central theme of the 2020 election seemed reluctant to criticize the communist Chinese government’s actions. Commerce Secretary Wilbur Ross called the Hong Kong situation an “internal matter,” while National Security Advisor John Bolton took the opposite tack and warned China that a crackdown similar to the 1989 Tiananmen Square massacre would be a “big mistake.”

For his part, the president, who had spent the last two years criticizing China, was unusually subdued when he spoke to reporters on Tuesday, saying, “The Hong Kong thing is a very tough situation, very tough. We'll what see what happens. But I'm sure it'll work out. I hope it works out for everybody, including China, by the way.”

Politico reported on Wednesday that President Trump agreed not to press President XI on human rights abuses prior to the G-20 summit in June. Per three people who were familiar with the telephone conversation between the two leaders, Mr. Trump did not extract a promise from China for his concession.

Since news of the conversation became public, President Trump cautiously broached the subject of Hong Kong in a tweet that first complimented President Xi and then said that Trump believed that “if President Xi wants to quickly and humanely solve the Hong Kong problem, he can do it.” Trump also offered Xi a “personal meeting.”

The bottom line is that even though many of President Trump’s supporters maintain that he is playing 4-D chess, it is more and more apparent that he has been outfoxed by both President Xi and Kim Jong Un at every turn. First, Kim won a diplomatic coup in having the president of the United States come to him without making any concessions. Now, Xi seems to have planned ahead to silence Trump as China handled Hong Kong while simultaneously destroying Trump’s chances for re-election.

China’s response to Trump’s latest tariff threat was to allow its currency to be devalued and shutting off Chinese purchases of American agricultural products. The cheaper yuan will make Chinese exports more attractive to other trading partners while shifting Chinese agricultural purchases to Russia will deprive American farmers of one of their largest export markets. The economic attack on American farmers is especially problematic for President Trump since rural white voters are a vital part of his base. Trump’s farm bailouts have already cost more than the combined revenues from his tariffs.

As the US economy teeters on the brink of recession thanks to the trade war and Trump faces increasing pressure to show progress due to the looming elections, China has more weapons ready to fire in the tariff tiff. Last May, the Chinese warned that they would use rare earths as an economic weapon against the United States if the trade war persisted. China controls about 90 percent of the world’s supply of these metals, which are used in the manufacture of electronics from games to smart weapons. If China cuts off the supply of rare earths to the US, the effect on the tech industry would be devastating.

Another weapon that the Chinese might deploy against the US is our own debt. With more than $1 trillion in Treasury notes, bills, and bonds, China is the largest foreign holder of US debt. China could call in this debt and cause the value of the dollar to crash. This is likely a doomsday scenario since the accompanying world financial crash would also be devastating to China.

On the other hand, Trump is running short of leverage to use against the Chinese. Typically, the US would respond to a problem like China’s actions in Hong Kong with economic sanctions, but American trade with China has been hard hit by the trade war. As trade between the two countries declined, so has America’s ability to influence the Chinese government. With heavy taxes on most Chinese goods, there are few arrows left in President Trump’s quiver.

There appear to be few ways out for Donald Trump. His choices are to stay the course and risk a recession or back down and risk his image. Even though the trade war is hurting also China, as I’ve pointed out before, China doesn’t have to outlast the American economy, they just have to outlast Donald Trump.

President Trump is in a very tight spot. If he persists in the trade war then it is almost certain that China will continue to ratchet up the reprisals on the American economy. More and more economists see the likelihood of a recession before the election, which would be devastating to Trump’s chances of re-election. Yesterday’s stock market sell-off was based on recession fears.

Likewise, if the Chinese decide to crack down on Hong Kong’s democracy demonstrators, people who are appealing directly to the United States, Trump would have very few tools to influence the Chinese government on behalf of the protesters. As a result, the US would lose face around the world while China flexed its muscles.

In either case, Trump would look bad at home. His strongest area has been the economy so, if the US enters a downturn, the president loses his best argument for re-election. Further, Trump’s base has long relished his reputation as a fighter. If he is seen as ineffective against a brutal Chinese action against Hong Kong, his tough-guy image could shatter and cost him support.

Trump’s current situation is almost unwinnable and the president has no one to blame but himself.

Originally published on The Resurgent

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