American trade policy is focused on steel, petrol cars and coal; China’s on robots, electric vehicles and solar panels. Our president has his eyes firmly fixed on the rear-view mirror as he attempts to reverse his SUV into the past and spend billions shoring up decrepit bridges on our internal infrastructure. China’s president is focused on the road ahead, a modern version of the old Silk Road. The $1 trillion globe-girdling work-in-progress, launched in 2013 and known as One Belt One Road, will be a network of ports, pipelines, railways, industrial parks and ancient maritime lanes. It will span 65 countries from China to Europe. The goal is to open markets that are now beyond the economic reach of Chinese firms, tap the natural resources that a growing Chinese economy needs, and splash cash to win friends and influence policy.
Donald Trump’s needy ego requires him to believe that he charmed Xi Jinping at a dinner party at Mar-a-Lago, after which the Chinese allowed us to sell some frozen meat in their country and voted for a North Korean sanctions resolution at the UN, but only after watering it down significantly.
Laying on a lavish reception allows Trump to believe he’s among friends
For example, there are no restrictions on food exports to North Korea. So China’s exports of corn and wheat to its neighbour are up 100 times and 11 times respectively over the past year — Xi’s contribution to preventing the people of North Korea from starving while the regime devotes resources to acquiring nuclear weapons and rockets capable of reaching the United States.
It has long been a comforting theory among economists in free-market capitalist countries that centrally directed economies sooner or later collapse under the weight of their internal contradictions, the Soviet Union being only the latest example.
China may be about to prove that a repressive government can indeed propel a country into global economic leadership with a combination of central planning, protectionism and the use of military power and investments to control world trade routes. Here’s how:
First, use currency manipulation as a weapon in building national economic power, undervaluing the yuan when necessary to stimulate exports, driving its value upward when necessary to stem capital flight. Second, protect old, inefficient, state-owned enterprises with subsidies and “buy China” rules to stop unemployment rising to levels that threaten the regime, and to ensure the managerial class’s obedience. Third, spend whatever it takes to dominate the industries of the future. The 10 on which virtually unlimited subsidies are being lavished in Xi’s Made in China 2025 campaign include aerospace, cloud computing, biopharmacy, integrated circuits and artificial intelligence. Cheap trainers and T-shirts are so yesterday.
Fourth, if possible, buy foreign companies with the required technology and when that doesn’t get the needed intellectual property, follow the dictates of Lenin, who said the capitalists would sell the Soviets the rope with which to hang them. No foreign firm can have access to China’s market unless it shares its technology with a Chinese partner, which most US firms are unwilling to do. If all else fails, steal whatever intellectual property is needed.
To make certain no foreign country can derail these plans, build a military capable of preventing the sort of reaction that at one time saw China vulnerable to foreign intervention — and humiliation. That includes a blue water navy and constructing islands that allow China to control the South China Sea and a trade route through which some 40% of the world’s trade must pass. And do not make the mistake Japan made on December 7, 1941, on what it thought was its road to world power: do not rouse America to action. Here’s how:
Persuade Trump you are being helpful with his North Korea problem while making certain the Kim Jong-un regime does not collapse;
Offer tiny concessions on trade in goods of no strategic consequence; and
Protest, but hold fire, if an occasional US destroyer sails close to an artificial island in the South China Sea. And gamble that America will not use the tools available to it to upset China’s plans, perhaps by laying on a lavish reception that allows Trump to believe he is among friends, a guest whose negotiating skills they hold in awe. Unfortunately, Trump denied himself use of the most powerful tool: the Trans-Pacific Partnership trade agreement. But he can tell Xi that unless China rebalances the economic relationship between the two countries, he will:
Back Congressman Robert Pittenger’s campaign to block Chinese firms from acquiring tech-heavy US companies such as Lattice Semiconductor, the Chinese bid for which was turned down by our government last month;
Don’t allow China’s $800bn sovereign wealth fund to realise its goal of investing more in the US until China removes restrictions and conditions on American firms; and
Trigger Section 301 of the Trade Act of 1974, which holds that if the investigation now under way by the US trade representative finds China guilty of violating US property rights and other acts that place an unreasonable burden on US commerce, the president can take “all appropriate . . . action”, no drawn-out World Trade Organisation proceedings needed.
Or Trump can be dazzled by the attention, strut, talk about minor trade matters and confirm Xi in his judgment that Mao had it right when he said: “America is . . . an old cucumber painted green.” Or, now, a nation increasingly relying on coatings of gilt to distract observers from the weaknesses beneath.