Tag: China

Upcoming Cato Discussion on China’s Role in Dealing with North Korea

The United Nations Security Council has approved another round of sanctions against North Korea in response to its latest nuclear test. No one really believes that the new penalties, focused on Pyongyang’s coal and other exports, will have any effect. In fact, it is doubtful that China, which purchases most of the North’s goods, will fully enforce the new resolution.

Still, with most policymakers giving up any hope that the so-called Democratic People’s Republic of Korea will voluntarily negotiate away its nuclear program, Beijing remains the best option for constraining the DPRK’s nuclear ambitions. The People’s Republic of China so far has refused to play its assigned role, but Washington continues to press the PRC to act.

Getting Beijing to take strong action against North Korea is a long-shot, as I explain in an upcoming Policy Analysis, but worth serious effort by Washington. What that would involve is the subject of a forum at Cato at noon on December 8. Susan Glaser of the Center for Strategic and International Studies and Scott Snyder of the Council of Foreign Relations will join me in a panel discussed moderated by Cato Vice President Christopher Preble to discuss the challenges and possibilities of engaging China over the issue.

One thing is clear. Washington and its East Asian allies need to persuade rather than demand that the PRC act. How best to convince Beijing, and what mix of carrots and sticks would be most effective in doing so, will be among the issues discussed on the 8th. I hope you can join us: the details, including where to RSVP, are included here.

Clamping Down on Overseas Investment — in China

This makes perfect sense – in a country ruled by the Communist Party:

China plans to clamp tighter controls on Chinese companies seeking to invest overseas, intensifying efforts to slow a surge in capital fleeing offshore amid tepid growth and an uncertain economic outlook.

Of course, it would be crazy in a capitalist country ruled by a party committed to free enterprise.

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Understanding When China Can (and Can’t) Wield Economic Influence

China Flag SmokestacksAs China grows more economically powerful there is growing concern about how it will convert its economic power into strategic influence. In its 2016 annual report, the U.S.-China Economic and Security Review Commission recommends closer scrutiny of Chinese economic practices and advocates creating a panel to prevent China’s state-owned enterprises from gaining “effective control” over U.S. companies. Fear of China’s commercial influence has recently spread to Hollywood as well, with recent purchases of film studios and theater chains by China’s Dalian Wanda leading to a torrent of commentary warning against Beijing’s nefarious long-term intentions.

The idea that China can easily convert its economic clout into influence is attractive and intuitive given the government’s important role in the economy. In Chinese Economic Statecraft: Commercial Actors, Grand Strategy, and State Control, William J. Norris, a professor at Texas A&M University’s Bush School of Government and Public Service, casts a skeptical eye on this assumption. Norris came to the Cato Institute recently to discuss his theory of economic statecraft and shed light on the complex domestic factors that help or hinder China from using commercial actors to achieve strategic goals. (Full disclosure, as a student at Texas A&M I spent several months as Norris’s research assistant while he worked on the book.) Using a theoretical model rooted in principal-agent theory applied to several case studies, Norris is able to show that China’s political leadership and commercial actors are not always on the same page.  

Economic statecraft is the intentional manipulation of economic interaction to produce or affect some sort of strategic end. Norris finds that effective economic statecraft requires state control over commercial actors and state unity across different sectors of government. While the Chinese government may have nominal control over its state-owned enterprises, it can be very difficult to get local officials in sync with provincial or national-level officials, which impedes the effective execution of economic statecraft. In some of Norris’s case studies Chinese commercial actors made decisions with little direction or oversight from state officials that had unintended strategic effects down the road.

The most important take-away from Norris’s book is, “economic statecraft is not an easy lever of national power for [China] to wield. To be effective, many factors need to align.” China’s economy makes it easier for the government to use its companies in strategic ways, but even in the Chinese system there are numerous factors that make it difficult to use commercial actors to achieve strategic goals. While Beijing has used commercial actors to achieve strategic goals, not every move by a Chinese state-owned enterprise is a strategic master stroke designed to maximize China’s power or undermine the United States. In order to better identify the real cases of Chinese economic statecraft, it would be prudent for analysts to apply the model in Norris’s book. 

The Simple Analytics of Why President-Elect Trump’s Policies Will Probably Result in a Trade War with China

The United States has recorded a trade deficit in each year since 1975. This is not surprising. After all, we spend more than we save, and this deficit is financed via a virtually unlimited U.S. line of credit with the rest of the world. In short, foreigners in countries that save more than they spend (read: record trade surpluses) ship the U.S. funds to finance America’s insatiable spending appetites.

Japan and more recently China have been the primary creditors for the savings-deficient U.S. And since their exports are largely manufactured goods, the real counterpart of their buildup of dollar claims on Americans is for them to run export surpluses in manufactured goods with the U.S. The accompanying chart shows the contribution of Japan and China to the U.S. trade deficit since the late 70s.

Percentage Contribution to U.S. Trade Deficit by Country

So, the U.S. savings deficiency has contributed to the hollowing out of American manufacturing. But, you wouldn’t know it by listening to President-elect Trump. He never mentions America’s savings deficiency. Instead, he claims that American manufacturing has been eaten alive by foreigners who use unfair trade practices and manipulate their currencies to artificially weak levels. This is nonsense.

To get a handle on why the President-elect Trump – and many others in Washington, including the newly-elected Senate Minority Leader Charles Schumer – are so misguided and dangerous, let’s take a look at Japan. From the early 1970s until 1995, Japan was America’s economic enemy. The mercantilists in Washington asserted that unfair Japanese trading practices caused the trade deficit and destroyed U.S. manufacturing. Washington also asserted that, if the yen appreciated against the dollar, America’s problems would be solved.

The Enemy Gets a Vote

Resolute Desk

In the week since election night, foreign policy watchers (myself included) have rushed to speculate about the effects that President Trump’s administration will have on the world. The most dramatic effect is the potential upending of the international order that the United States built after World War II. Of course, at this point it is impossible to determine whether or not such a consequence will come to pass, but it deserves consideration.

Baked into the idea that Trump will tear down the international order is the assumption that Hillary Clinton would have maintained the order if she was president. Jeffrey A. Stacey argued as much in Foreign Affairs when he wrote, “The world’s challenges require a determined use of U.S. leadership, not isolationism. And in the areas where Obama’s restraint has failed, the more activist Hillary Clinton Doctrine…could likely prevail.” However, the idea that the United States can influence events through “leadership” ignores the fact that in foreign policy the enemy gets a vote. In other words, the growing relative power of America’s adversaries will still pose a challenge to the international order, regardless of what actions the United States takes or who sits in the Oval Office.

America’s ability to rein in the bad behavior of other states has diminished, not because the United States is in decline, but rather because the power of our adversaries has grown. In East Asia, for example, the two most important challenges to the security status quo are North Korea’s nuclear weapons program and China’s improving conventional military capabilities. Both developments threaten the regional order in East Asia, and resist American attempts to stop them. Multilateral and bilateral sanctions efforts have failed to stop North Korea’s nuclear weapons program, which has come a long way with minimal external assistance.

China’s growing military power enables more assertive behavior in the South and East China Seas, despite displays of resolve by the United States and its allies. While many have criticized the Obama administration for not doing more against China, the simple fact is that as its military grows strong it becomes harder to deter China from using it. Beyond East Asia, after years of neglect following the Cold War, the Russian military is fielding new capabilities and pushing back against NATO expansion to countries along its border.

The growing relative power of America’s adversaries does not make the president obsolete, but the individual behind the Resolute desk is not omnipotent. They cannot always prevent changes in the balance of power or maintain the international order by dialing up the “leadership” they demonstrate. We don’t know what impact Donald Trump will have on the world, but the threats America faces would exist regardless of who won the election. The assumption that Hillary Clinton would be able to prevent negative outcomes through greater leadership on the international stage disregards the growing power and agency of America’s challengers. 

100 Days of Trump Trade Policy

Donald Trump is well known for his vociferous complaints about foreign trade.  Trump has also gained notoriety for offering very vague policy proposals, and trade is no exception.  This has left observers knowing that Trump wants to do something big on trade but without much sense of what, specifically, that will be.  Now that Trump is president-elect of the United States, that uncertainty is bound to vanish as Trump’s plans and intentions necessarily become more concrete.

For the moment, however, we are left to speculate based on Trump’s vague and bellicose announcements.  The most reliable indicator of Trump’s plans is probably Trump’s “100-day action plan to Make America Great Again” he produced in the closing weeks of his campaign.  That plan has reportedly been fleshed out a bit by his transition team.  The plan includes numerous executive actions and a list of legislative proposals. 

In one section, Trump lists “Seven actions to protect American workers,” four of which directly involve trade.  Let’s go through them one by one.

Renegotiate of Withdraw from NAFTA

It’s no secret Donald Trump really doesn’t like NAFTA.  He has said that NAFTA “destroyed our country.”  It’s safe to assume Trump means to act on this.  According to Politico, the longer version of Trump’s 100-day plan specifies that Trump will start renegotiating NAFTA on day one and withdraw from NAFTA “by day 200” if he hasn’t gotten what he wants yet.

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Trump’s Victory Is a Mixed Bag for China

Xi Jinping FlagDonald Trump’s upset victory over Hillary Clinton last night is bound to stir up fears of instability and uncertainty in East Asia, a region that was almost entirely ignored during the campaign. Commentators have rushed to predict that Trump’s campaign rhetoric will turn into reality: the United States will pull back from East Asia, and China will take advantage of the ensuing chaos to seize geopolitical dominance of the region. This morning James Palmer at Foreign Policy writes, “Chinese leaders near me in the palatial complex of Zhongnanhai are surely cracking open the drinks.” This is a pretty scary vision of the future. However, such assessments, which focus solely on Chinese benefits, don’t take into account the complex nature of U.S.-China relations.

President Trump is by no means a clear victory for China. The uncertainty created by his victory could easily produce an economic and geopolitical climate that damages Chinese interests. For example, three of the seven points in Trump’s Plan to Rebuild the American Economy mention policies that would hurt the U.S.-China economic relationship: labeling China a currency manipulator; bringing trade cases against China in the World Trade Organization; and imposing tariffs in response to “illegal activities.” Igniting a trade war with China would pose a severe risk to China’s economy, which is already slowing down. Trump’s stated policies would likely deepen China’s economic woes, thereby increasing the domestic instability that Beijing is obsessed with avoiding, especially in the lead-up to the 19th Party Congress in late 2017.

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