As stock markets around the world are reeling from contradictory Trump administration signals regarding US policy towards China, we look at: Who benefits? And: What would a better trade policy towards China look like? CEPR’s Mark Weisbrot and PERI’s Gerald Epstein discuss the issue
GREG WILPERT: It’s The Real News Network and I’m Greg Wilpert.
Stock markets in the U.S. and around the world have been involved in a rollercoaster ride over the past week. One of the main reasons for the ups and downs are said to be the uncertain trade negotiations with China. As a result, almost all of the stock market gains that have been made in 2018 were wiped out in the last two months. Another factor that threw a wrench into China-U.S. trade negotiations this week was Wednesday’s arrest a Chief Financial Officer of Huawei, the Chinese telecommunications company. Canadian authorities arrested Meng Wanzhou in Vancouver on Wednesday at the behest of the U.S. government.
Exactly why she was arrested was not clear, but there is speculation it has something to do with allegations that her company, Huawei, violated U.S. sanctions against Iran. Regardless of the reason, what this arrest shows is U.S.-China relations are in an extremely volatile moment where anything can happen it seems. Joining me now to analyze U.S. trade policies toward China are Mark Weisbrot and Gerald Epstein. Mark is a Codirector of the Center for Economic and Policy Research in Washington, DC, and Jerry is the Codirector of The Political Economy Research Institute and Professor of Economics at UMass Amherst. Thanks for joining us again, Mark and Jerry.
MARK WEISBROT: Thank you.
GERALD EPSTEIN: Thanks, Greg.
GREG WILPERT: So I want to start with this most recent news about the arrest of Meng Wanzhou, Huawei’s Chief Financial Officer. Stock markets around the world reacted very strongly to her arrest, dropping by as much as 2 percent, implying that investors believe that her arrest bodes badly for U.S.-China relations and for the trade negotiations that are supposed to happen between the two countries over the next three months. The reasons that these negotiations are so important is because the U.S. and China are effectively engaged in a tariff war. The Trump administration has stopped a 10 percent tariff on 200 billion dollars worth of Chinese imports, and China has reciprocated with tariffs on 110 billion dollars of U.S. imports. Now, negotiations are on to find an agreement by March 1.
So the question here is, who benefits? That is, what sectors of U.S. society stand to benefit from these actions of the Trump administration and these tariffs? Let me start with you, Jerry.
GERALD EPSTEIN: Well in fact, in the short run, I don’t think anybody’s really benefiting except for those who are trying to drive a wedge between China and the United States. That is, there are groups within the Trump administration who are hawks on China and have been so for a long time. And for them, this is mostly an international political strategic military strategy to try to prevent China from being a strategic enemy of the United States. There are those who are hoping in the longer run they will benefit. U.S. businesses who are operating in China really want the Chinese to give some concessions to them to let them have more access to the markets, including financial services, businesses. High tech businesses are concerned about China stealing high tech secrets and so forth.
So they’re not benefitting yet. China has not made any concessions, and it could go much worse for them. But they could benefit if China caves in. U.S. workers aren’t going to be benefiting at all, I don’t think, because most of what the Trump administration is pushing are for concessions to U.S. business. So it doesn’t seem like U.S. workers have much hope in benefiting at all from this.
GREG WILPERT: Mark, what do you say? What do you think about what Jerry said, and also in general, who benefits and who suffers from these Trump tariff policies and trade war?
MARK WEISBROT: Well, I agree with Jerry. We’ve had this problem with all the previous administrations too. They make threats or whatever against China and they say they’re going to negotiate. And they go to negotiate, and what are they negotiating for? They negotiate for longer and stronger patent protections, intellectual property claims that they want. And of course, this doesn’t help us at all. In fact, it hurts us in the United States. China wants to develop a pharmaceutical industry, that’s part of their plan for Made in China 2025. That would be great for us, if they sold more generic drugs on the international market so we wouldn’t have to pay hundreds of thousands of dollars for lifesaving cancer or Hepatitis C drugs. So they’re negotiating for the things that redistribute income upward towards them, the people who are really in these negotiations, and that’s been the pattern all along.
They want more access to financial services in China. That doesn’t get us anything. And on the trade issues, here’s the interesting thing. Obviously, Trump does have some advisers who do care about this, Lighthizer and Navarro in particular, but I don’t think they’re going to try very much. They’re going to make the same kind of settlements, they’ll get the things that the corporations really care about. But if they did care about trade, the thing that affects our trade with China most, and the rest of the world in our trade deficit, is the value of the dollar relative to other currencies. And here, you’ve never seen any negotiation, but you don’t even need negotiation because – I mean, obviously they should negotiate, I think that’s an important thing, all countries should negotiate their commercial relations, especially the two biggest economies in the world. But they can actually control the value of the dollar themselves.
In other words, the United States, just like China, intervenes in currency markets to control the value of their currency. The U.S. can do the same, it has done so as recently as the early 90s I think. And so, it’s really kind of ridiculous to blame China for undervaluing their currency when the United States can change the value the dollar anything we want. The dollar is 60 percent of the world’s reserve currency. The U.S. has the most power of any currency holder in the international financial system, and so they can change it anytime they want.
GREG WILPERT: Mark, what you say raises two questions for me. One is, first of all, I mean, if the U.S. were to engage in devaluation of the U.S. dollar, couldn’t this lead to a race to the bottom of sorts where each country tries to gain economic advantage by lowering the value of their dollar, first of all. And secondly, I’m wondering about the argument that you briefly brought up, which is the Trump administration’s argument that this is all about establishing a fair trade balance, or more equal trade balance, between the U.S. and China, in other words, to reduce the U.S. trade deficit with China. To what extent is that an issue or a non-issue? The Trump administration, after all, or Trump at least, says that the trade deficit is very dangerous and very bad for the United States. So what do you think of that?
MARK WEISBROT: Well, the trade deficit is a problem. And it’s kind of unfortunate that it took Trump to point that out, because it’s kind of like when the villain in the Batman movie starts, as they did in one of those movies, mouthing the rhetoric of the Occupy movement. It doesn’t really help. But yeah, the trade deficit is a problem for a variety of reasons, but they’re not going to do anything about that. And because that’s not fundamentally what the corporations that are in power in this country really care about and Trump doesn’t really – he talks but he hasn’t really gone against them on these things. Ideally, you want to have a negotiated solution between not just the U.S. but with Europe too, and China. I mean, there should be some kind of agreement on currencies.
And if you don’t, though, I’m saying if they really cared about the trade deficit at all and they thought the Chinese were undervaluing in their currency, which isn’t actually that clear right now – most of the experts here in Washington, for example, say that they’re not. If they were, then the U.S. could lower the value of the dollar. If this created some kind of race to the bottom, then you’d probably see negotiations.
GREG WILPERT: Jerry, what do you think of those issues, specifically the deficit issue as a problem that the Trump administration brings up, and also the issue of the extent to which the U.S. might be able to combat the unfavorable trade with China with a devaluation of the U.S. dollar?
GERALD EPSTEIN: Well, as Mark said, there has been a longstanding problem that has harmed American workers in many ways. There’s also been some benefits from cheaper products and so forth for workers as consumers. But as David Autor at MIT and others have shown, this big expansion of imports from China, manufactured goods and so forth, has negatively impacted a lot of workers and communities around the world and around the country. And part of this has been this export-led strategy that China has taken in its economy. And to a significant extent, that was completely justified. It’s a very poor country, wanted to develop. Most countries that have developed have done so using, in recent years at least, has used an export-led strategy. But there are limits to how much the world can tolerate a purely export-led strategy by China. And it’s not just the United States tolerating it, but Europeans and others.
So the Chinese have known, in fact, that they need to make a transition to less export-led growth and more buying imports from the rest of the world and so forth. And the Trump administration, as Mark said, was right to stand up about this. But the solution is to have a negotiation discussion about how to increase Chinese imports from the United States and other countries, a direction that I think the Chinese want to go in anyway, and cooperation to ease this transition on all sides. The problem is the U.S. is trying to create a new Cold War with China. And we’ve seen from history that when the leading country is trying to create a new Cold War with the rising countries, chances are this is going to lead to conflict. And my fear is that this is not going to be good for anybody and could get out of control.
In terms of the dollar, again, I agree with Mark to some extent that there’s some movement there, but I don’t think that’s an ultimate solution for some of the reasons that you said. That if we lower the value of the dollar, it’s not just against the Chinese currency, but it’s against many other countries’ currencies and many other countries, poorer countries. Vietnam and countries in Africa and elsewhere still need to be able to export to the United States and we still need to be able to import from them. So it’s kind of a blunt instrument, I think, and isn’t necessarily the best way to go in a major move.
GREG WILPERT: Well, I want to turn now to the issue, kind of what a comprehensive and more sensible U.S. trade policy towards China would look like. Let me start with you, Mark.
MARK WEISBROT: Well again, I think negotiation over the disputes would be a serious negotiation, but they are not doing that. And to the extent that they are, they’re doing things that will either make the trade deficit worse or they will just benefit particular interests here. So for example, if they’re complaining a lot about U.S. corporations having to negotiate with the Chinese government and actually share technology with them, well if those corporations don’t want to when they invest there, when they move factories there, if they if they don’t want to make those concessions, they don’t have to go there. Why should our government fight for the ability of U.S. corporations to make more profits outsourcing in China? That’s what the Trump administration is doing.
And I just want to say, I think Trump is, his politics are all about distraction. That’s what he did during his whole presidential campaign and that’s what he’s done since he’s taken office. There’s a new distraction every day. And trade is perfect for that. He can start a trade fight with anybody in the world, and he’s done it with Mexico, Canada, Europe, China. So it isn’t just China. So this is all just hucksterism in terms of what the president himself is really doing. And I don’t think it has much to do at all with trying to have a trade policy that benefits the majority of people in either country.
GREG WILPERT: Well, what do you think it is a distraction from?
MARK WEISBROT: Trump just lives on distraction. It’s a distraction from the fact that he’s … Well, what has he done for people here? He ran on this platform he’s going to create jobs, he’s going to build infrastructure. He was going to help people, workers here, that’s how he got the swing votes in Michigan, Wisconsin and Pennsylvania that put him in the presidency. He hasn’t done anything for them at all. And with the trade, he can create this distraction, say “I’m standing up to whoever,” come back from Europe and say he got something when he didn’t. And it’s perfect for him. And they have another thing. Like what Jerry mentioned is this Cold War thing, that’s very, very important too, because they want to maintain military supremacy in the waters around China, for example, in the region, and China is, right now, bigger than the United States. The media gets that wrong, because the best measure for comparing economies that economists use is purchasing power parity, just for prices in the different countries.
It doesn’t cost the same to build a plane in China, or train a pilot, than it does in the United States. And so, China’s economy is about a quarter, actually, 25 percent bigger than ours now, and within a decade, it’s going to be twice the size. We want to have an arms race with China. We had an arms race with the Soviet Union when it was about a quarter the size of us. We’re going to have an arms race with a country that’s twice our size. They’re going to use that as an excuse to cut everything and it’s going to be devastating. But there are plenty of big military corporations and others would be very happy to have that. And that’s not the whole driving force. I mean, basically, the United States as we know is an empire and they don’t like the idea that we’re not the largest economy anymore. And the people who run this country, they think that they can still push China around as if it were a little poor country. That’s not going to happen.
GREG WILPERT: Jerry, I want to turn to you, finally, about the issue of what would be a more sensible trade policy. You both mentioned that negotiations would be a key component, but negotiations for what?
GERALD EPSTEIN: Right. So in order to think about this, we have to think of a different political configuration in this country where it’s not the major banks, the major multinational national corporations and the major foreign policy hawks and military industries that are dominating China’s strategy, which as Mark indicated is what’s happening now. I mean, if we really could imagine an administration that really cared about developing our own country and raising wages and employment opportunities and dealing with key problems facing us, primarily climate change, you could imagine a whole other set of policies of which trade with China would be a part.
So for example, if the United States government decided to implement a Green New Deal like my colleague Bob Pollin and many others have argued for, and an associated infrastructure program, then they could invest billions of dollars in that that are required. And they negotiate with China about what part of that they can be a part of in terms of exporting to the U.S., in exchange for China also raising workers’ standards there, which would eliminate their unfair, competitive advantage, deal with their coal problem, which would help reduce their fossil emissions. And so, trade could be part of a whole strategy that the United States has to deal with these major problems like inequality, unemployment and climate change, and integrate negotiations with China in order to help bring that about.
GREG WILPERT: OK. Well, we’re going to leave it there for now. I’m sure we’ll get back to it again as these negotiations continue. I was speaking to Mark Weisbrot, Codirector of the Center for Economic and Policy Research and to Gerald Epstein, Codirector of the Political Economy Research Institute at UMass Amherst. Thanks again, Mark and Jerry, for having joined us today.
GERALD EPSTEIN: Thank you very much.
MARK WEISBROT: Thank you, Greg.
GREG WILPERT: And thank you for joining The Real News Network.
If you like Real News Network stories such as this one, please keep in mind that we have started our winter fundraiser and need your help to reach our goal of raising four hundred thousand dollars. Every dollar that you donate will be matched. And unlike practically all other news outlets, we do not accept support from governments or corporations and thus depend on our viewers. Please do what you can today.