June 7, 2018
Trade Deficits Paying for China Military Buildup
One little detail largely escaped media notice when Chinese president Xi Jinping met with North Korean dictator Kim Jong-un on May 8. The visit coincided with China's launch of its first indigenous aircraft carrier in the town where the two met, perhaps sending a message to friend and foes of both China and North Korea:
The pair reportedly met in Dalian, where Xi will attend a ceremony launching the country's first domestically-built aircraft carrier.
To North Korea, the message was, don't worry, because China has your back. To the U.S., the message was, you'd better start worrying about more than the price of soybeans.
China has global ambitions, and those ambitions, like that new carrier, are being paid for in large part by the vast transfer of wealth via our huge trade deficits with Beijing.
Agreeing with that assessment is former Wall Street Journal editor and Asia expert Brett M. Decker, who warns that those who worry that tariffs will increase the price of consumer goods and provoke a trade war are missing the big picture: that China is using its trade surplus us to prepare perhaps for a real war.
America's trade deficit with China serves the authoritarian state's global ascendance and regional power ambitions, said Decker."What are our dollars doing?" asked Decker. "We're building, paying for, and underwriting [China's] military buildup. We're building their infrastructure. We're making their country stronger for the future, sort of at the long-term expense of our own. We're not making the investments in our own infrastructure.""Every three years, we're at a rate of $1.2 trillion in trade deficit with China," said Decker. "That's money they're just using to build a deepwater fleet so they can project force in the Pacific. It's a national security issue, as well." ...The trade deficit "is not only a consumer question," said Decker, inviting political observers to contemplate "the bigger picture" of geopolitics.
For those who cheerfully chirp that they personally have a trade deficit with K-Mart to neither's disadvantage and both getting what they want, consider that K-Mart is not taking your money and building aircraft carriers, anti-satellite weapons, and ballistic missiles with multiple and maneuverable warheads. Those militarized islands in the South China Sea are there not for tourists, but to militarily support China's territorial and resource theft in the region as it pursues its global ambitions.
Peter Navarro, assistant to President Trump and White House Office of Trade and Manufacturing policy director, writing in the February 9, 2016 National Interest, uses America's F-22 Raptor as an example of how China's intellectual property theft in combination with our huge trade deficits has placed us in mortal peril:
Let's see, however, if we can put the size of the U.S. trade deficit with China into some perspective; and let's start with the F-22 – the only U.S. fighter jet with the agility, speed and stealth to overcome the latest Russian air defense systems and newest Chinese and Russian fighters[.] ...America can deploy only 187 F-22s because Congress, with President Obama's veto gun to its head, cancelled further construction due to high costs: about $360 million a plane[.] ...In contrast, China surely will have the capability to churn out record numbers of its F-22 clone known as the Chengdu J-20Mighty Dragon. The sad irony here is that even as Congress was voting to halt F-22 construction, Chinese cyber hackers were brazenly stealing the F-22's blueprints.Now here's the relevant trade deficit math: Assuming that it costs about half the price for China to build its F-22 clone because of cheap labor and no need to pay for the R&D that went into developing the F-22, China can use a little more than one month of its trade surplus to replicate the entire U.S. F-22 air wing – and pay for 1,000 of these planes with American consumer dollars in less than six months.
There's clearly a lot more going on here than the price of a refrigerator at Home Depot. While we wring our hands over how China boycotting our soybeans might affect the midterm elections, China is figuring out how to allocate our gift in the financing of its major weapons systems:
[Y]ou can do the (admittedly) rough numbers for any of a number of other Chinese weapons systems. For example, one day's worth of China's trade surplus with the United States buys 1,000 new cruise missiles that Beijing can point at Taipei or one hundredanti-ship ballistic missiles to target American carriers.Similarly, just one week's worth of China's trade surplus finances the construction of at least three new Chinese aircraft carriers to patrol the South China Sea and Indian Ocean or twenty new Yuan class diesel electric submarines to lay [sic] in wait for Japanese destroyers or American aircraft carrier strike groups. And Beijing can pay for its entire annual defense budget with a mere five months of what American consumers contribute to Beijing's imperial fisc.
American consumers are quite simply financing China's war machine. They financed China's new aircraft carrier. And they are financing China's long-term territorial ambitions in the East and South China Seas:
Beijing has long declared the South China Sea to be its territorial waters and has laid claim to two disputed chains: the Paracel Islands, about 200 miles from the coast of Vietnam, and the Spratly Islands in the southeastern part of the South China Sea. China's territorial ambitions include the Senkakus in the East China Sea, part of what Chinese military doctrine refers to as the "first island chain" that surrounds China.
China's claim to the Senkaku Islands in the East China Sea involves islands under Japanese administration and that Tokyo claims as Japanese territory. In the South China Sea, as of February, according to Reuters, China had finished construction on no fewer than six different island reefs from which to project its power in the South China Sea. Included in its military effort is the construction of a 3,000-meter (9,842 feet)-long runway on the artificially expanded Fiery Cross Reef as a base for Chinese fighter aircraft.
The Chinese know the nexus between national wealth and national strength. While we struggle to find a way to get Mexico to pay for the border wall, China has found the easy way to get America to pay for its military.
Daniel John Sobieski is a freelance writer whose pieces have appeared in Investor's Business Daily, Human Events, Reason Magazine, and the Chicago Sun-Times among other publications.
Why China Can’t Afford a Trade War
Beijing is more economically vulnerable than it appears.June 5, 2018
Economy, finance, and budgets
Politics and law
China and the United States have agreed not to impose tariffs on one another—that is, not to engage in a trade war—at least while they negotiate a trade settlement. If the White House is to be believed, China has agreed to increase “significantly” its purchases of American goods, especially agricultural products. This is welcome news: China-U.S. trade, for all the restrictions and conditions placed on it (mostly by Beijing), reflects an economically symbiotic relationship. A trade war would damage both countries. But Chinese concessions up front are also significant because tacitly they acknowledge weakness, even as China tries to present an image of trading dominance.
Beijing’s clearest difficulty lies in its export-oriented growth model, which many in the West erroneously see as a strength. Because China overemphasizes manufacturing, it produces surpluses that get wasted unless its state-owned firms can sell them. Without buyers, stacks of rebar, jet engines, and the like will rust in factory yards, and iPhones and millions of team-logo t-shirts pose a storage problem. The structure depends on prosperity elsewhere to absorb Chinese products. Reports on China’s recent economic growth surge underscore this dependency: even China’s own statistical bureau pointed to the acceleration of growth in the United States and Europe as the cause of its spurt.
Observers who fear Chinese manufacturing capacity point to the West’s vulnerability in this area. Because the United States and other developed economies have lost so much productive power to China, they would face shortages should Beijing decide to withhold supplies. Chinese refusal to export its products would hurt the West, perhaps even precipitating a recession, but inflicting this pain would come at great cost to China. Its export-oriented manufacturing would stagnate, and so, accordingly, would its export-dependent economy. Socially, China would suffer as well. Beijing fears a recurrence of the riots that rocked the nation during the great recession of 2008-09.
Grand planning always carries the tendency to overreach. In the early years of this century, when China’s exports of cheap toys and shoes propelled its economy to double-digit growth, the nation’s planners assumed that the pattern would last indefinitely. They built huge infrastructure projects and factories, and housing for millions of new manufacturing workers. Then the economy changed. Vietnam used its lower average wage to overtake Beijing in shoe and clothing manufacturing. China then had to deal with the excesses of its building program and with the associated debt burden. When the hot industries of the moment give way to something else—as they inevitably will, either to changing demands or competition from other economies—China will again have huge surpluses and productive facilities that the world will no longer need.
Competitive markets can also create excesses, of course. The housing crisis of 2008-09 offers a painful example. But the risk imposed on individual players in competitive economies provides a check on how far excesses can go, relative to what can happen in a centrally planned economy. Grand economic plans can dazzle observers. In the past, they have filled the notebooks of astonished journalists returning from China, as they did for those returning from Japan in the 1980s. But once things change, that impressive marshaling of effort leads to more waste and a greater need for adjustment than in market-based systems, where caution and the absence of the ability to command resources so thoroughly limits how far out of alignment things can get.
Central planning keeps Chinese technology a step behind. In a strident two-hour talk given last month to the National People’s Congress in Beijing, Chinese Premier Li Keqiang repeatedly stressed industrial policies, emphasizing the “Made in China 2025” plan that emerged not long ago from the National Development and Reform Commission, the country’s planning agency. The plan intends to “speed up work to build China into a leader in manufacturing” by investing billions in “big data” and “robotics,” as well as “semi-conductors” and “aircraft engines.” Li gave special mention to “clean cars.”
But China has no tradition of technological innovation. In fact, China insists on technology transfers from Western and Japanese partners, and has likely engaged in industrial espionage to steal the intellectual property of foreign firms and governments. These activities no doubt have kept China closer to the technological edge than it otherwise might be. As with other projects, central government planning has created impressive applications, most recently in robotics and artificial intelligence. But all this transfer and theft keeps China dependent on others for each upgrade. And because applications always wait until after the initial breakthrough, the practice ensures that China will remain behind the West.
The trade talks could yet go awry. Washington has made clear its willingness to impose tariffs if negotiations don’t work out. Should that happen, Beijing would almost certainly retaliate. But the prospects of reaching a compromise look good. The Trump administration, for all its bluster, knows that the U.S. economy would suffer in a trade war—and Beijing, well aware of its comparative weaknesses, doesn’t want one, either.
Photo by Thomas Peter-Pool/Getty Images
"After eight years of the Dodd-Frank bank “reform,” the
American financial oligarchy exercises its dictatorship over
society and the government more firmly than ever. This
unaccountable elite will not tolerate even the most minimal
limits on its ability to plunder the economy for its own
personal gain."
There is no economic boom in sight
BY ROBERT SHAPIRO, OPINION CONTRIBUTOR
THE VIEWS EXPRESSED BY CONTRIBUTORS ARE THEIR OWN AND NOT THE VIEW OF THE HILL
To understand what is happening in the economy right now, the best advice is to listen intently to the Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS). The BEA recently issued its revised GDP report for the first quarter of 2018 and its report on personal income and outlays in April, while the BLS released the employment report for May. The first two reports point to the economy’s continuing weaknesses, and the failure so far of last year’s huge tax cuts to spur investment, while third shows employment continuing to grow at a healthy rate.