What’s the biggest danger from China: (a) its trade surplus with the United States; (b) its theft of U.S. technology; or (c) its aggression in the South China Sea? Most experts would say (b) or (c). President Trump thinks it’s (a). Therein lies a big problem.
Trump harps incessantly on China’s $375 billion trade surplus with the United States. “We cannot let this continue!” he fulminates. What we truly cannot allow to continue is the president’s abysmal ignorance of elementary economics; if the Wharton School had any self-respect, it would rescind his degree.
Trump acts as if China is stealing from us because we buy more of its goods than vice versa. By the same token, he must think that my local supermarket is ripping me off when it sells me $100 worth of groceries without buying $100 worth of my books in return. Actually we are both receiving something valuable — I get food, the supermarket gets money — even though I am running a trade deficit.
In China’s case, we receive everything from LED displays to plastic disposable gloves. At the same time, China buys a lot of things from us — $130 billion worth of goods in 2017, making China the No. 3 destination for U.S. exports. That’s a mutually beneficial relationship that Trump may endanger with his trade-war bluster, even as his economic policies actually exacerbate the trade deficit.
Trump’s tax cuts and spending increases are stimulating demand, but with the economy at full employment the United States can’t produce all the goods that consumers want to buy. Ergo: We have to import more, and the trade deficit rises. If Trump truly wanted to cut the trade deficit, he would cut the budget deficit.
There are, to be sure, more serious problems with China’s trade. Beijing steals U.S. intellectual property, produces counterfeit goods and does business with rogue regimes. Those are violations of international trade rules that the United States could pursue in concert with its allies through the World Trade Organization, targeting violators with sanctions, if necessary. That’s hard to do, however, when the United States itself violates WTO rules by slapping arbitrary tariffs on our major trade partners. To add to the incoherence, Trump is actually lifting sanctions on Chinese telecom giant ZTE despite its documented violations of U.S. trade rules — including export of U.S. telecom equipment to Iran and North Korea.
While Trump is ramping up his trade dispute with China, he is not focused on China’s illegal annexation in the South China Sea — an act of territorial aggression every bit as outrageous as the Russian invasion of Ukraine (which, come to think of it, he’s not focused on either). Beijing has constructed a series of military bases on man-made islands that will allow it to dominate this strategically vital waterway that is transited by a third of the world’s maritime traffic even though large portions of it belong to other countries.
China has deployed on the Spratly Islands anti-ship cruise missiles and surface-to-air missiles, and it just landed an H-6K strategic bomber in the Paracel Islands. Adm. Philip Davidson of U.S. Indo-Pacific Command warns that “China is now capable of controlling the South China Sea in all scenarios short of war with the United States.”
Defense Secretary Jim Mattis has signaled his alarm by disinviting the Chinese navy from the Rim of the Pacific naval exercise and by stepping up “freedom of navigation” patrols. On Tuesday, two B-52 bombers flew near the Spratly Islands. These actions were clearly taken at the initiative of the defense secretary, not the distracted president. When last week Mattis denounced China’s “intimidation and coercion” in the South China Sea, Trump responded with a cryptic tweet: “Very surprised that China would be doing this?” That is only the second mention of the South China Sea in his entire Twitter timeline compared with four tweets just this week about his decision to cancel a White House invitation to the Philadelphia Eagles football team.
Trump does deserve credit for signing an increase in the defense budget that will enable the Navy to expand from 280 ships to 326 ships by 2023. That is a big improvement in U.S. capacity to challenge China’s growing military might, but it is still nowhere near the 355 ships that the Navy needs to carry out all of its missions. Even with that buildup, the United States will be hard-put to keep the South China Sea open by itself. The United States has plenty of Asian allies, but Trump is busy alienating them — witness his pullout from the Trans-Pacific Partnership and his refusal to grant Japan a waiver from steel and aluminum tariffs.
Trump’s “America First” policy is effectively allowing China to become the No. 1 power in East Asia. All his ignorant bluster about the trade deficit only distracts him and us from the real danger.