US-China trade war: Why America must win
There have been many complaints about the US-China trade war. The increased tensions between the world’s two largest economies may cause some short-term growth headaches, but as far as I am concerned, it will all be worth it given what’s at stake.
According to President Trump, things are moving in the right direction after talks this week between US and Chinese trade negotiators in Beijing.
“We’re negotiating and having tremendous success with China,” Trump told reporters on Thursday.
While China’s US imports have grown from $50 billion in 1996 to over $500 billion in 2017, US manufacturing jobs shrunk more than 30% from 1998 through 2010. We cannot complain really, as we have enjoyed our low-priced goods enabled by cheap Chinese labor, even at the cost of our more expensive American jobs.
And yes, it is time for the adult conversation about how we have backed ourselves into an unholy alliance with “the Dragon” who is quite unequivocal about its path to global domination. The party is coming to an end, President Trump knows it and I believe that is why he has taken the almost dogmatic stance he has.
The government-run censorship, unlimited data gathering and surveillance is one thing. Their economic initiatives are even more telling.
In 2015, Beijing introduced its Made In China 2025 initiative, the path to moving its economy from low-wage electronics assembly, clothing and footwear manufacturing to a globally competitive player in telecommunications (think Huawei) and information technology, advanced robotics, next-gen cars, aerospace and artificial intelligence. This shift from a low-skill, low-wage labor force to a global competitor of sophisticated engineering and manufacturing will bring the country’s per capita GDP in line with the West.
Meanwhile, China’s middle class alone is expected to exceed the entire US population by 2022. Not only is this a threat to our American way of life, because there will be no more cheaply assembled goods coming from a low-wage China, but their rise as a competitor in these industries is deeply threatening to America’s multinational corporations. Not because America cannot compete shoulder to shoulder with China. But because, I would argue, China cheats to get where it wants to go.
Poland said Friday it has arrested a Chinese employee of Huawei and a Polish national involved in cyber business on allegations of spying, according to Reuters. The report said US intelligence agencies allege Huawei Technologies Cos Ltd is linked to China's government and that its equipment could contain "backdoors" for use by government spies. The firm has has repeatedly denied the claims.
Meanwhile, the Council on Foreign Relations’ August 2018 report outlines how China will provide hundreds of billions in subsidies and tax breaks, with state-controlled financial institutions providing low interest financing, in the awarding of lucrative contracts to Chinese companies. At the same time, it requires foreign corporations to create joint-ventures with Chinese companies in order to acquire access to the Chinese market.
All the while, they walk a very fine line with the World Trade Organization as they use their per-capita GDP to depict a "developing" nation, entitled to practice some trade protectionism while simultaneously stating that Trump’s tariffs are meant to contain their rise as a global economic superpower.
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Yes, many have complained about the disruptive impact Trump’s tariffs have caused American companies (like Apple in its downward revenue revision), the problems that potential interruptions in supply chains would create, and the market volatility triggered by an escalating tariff-for-tariff exchange. But we have already been where China is trying to go, trading a large majority of our manufacturing for a next generation economy. Once China achieves the same, who will supply America with our cheap wares … will our American companies still dominate on the world stage?
No, acquiescence to the status quo now without a real trade deal only helps China further their global rise at our own expense. Plain and simple, this is one war America must win.
About Rebecca Walser Rebecca Walser is a tax attorney, a certified financial planner, and the author of Wealth Unbroken, who specializes in the strategic planning of maximizing lifetime wealth while minimizing tax through her practice, Walser Wealth Management (www.walserwealth.com). She earned her juris doctor degree from the University of Florida and her Master of Law degree in taxation from New York University. She is a frequent national media contributor.