Tag: China

Missile Accident Reminds U.S. of Dangers of Taiwan Commitment

Taiwan long has been one of the globe’s most dangerous tripwires. Other than a brief period after World War II, the island has not been ruled by the mainland for more than a century. The 23 million people living on what was once called Formosa have made a nation.

However, the People’s Republic of China views Taiwan–also known as the Republic of China (ROC)–as part of the PRC. As China has grown wealthier, it has created a military increasingly capable of defeating Taiwan.

At the same time, economic ties between the two nations have grown, yet the Taiwanese population has steadily identified more with Taiwan than the PRC. The election of Tsai Ing-wen of the traditional pro-independence Democratic Progress Party as president in January greatly discomfited Beijing.

Modern Slavery, More Important than Who Built the White House

When Michelle Obama delivered her address at the Democratic National Convention (DNC) in Philadelphia, she created a stir when she cried out that America’s story was “the story that has brought me to this stage tonight, the story of generations of people who felt the lash of bondage, the shame of servitude, the sting of segregation, but who kept on striving and hoping and doing what needed to be done so that today I wake up every morning in a house that was built by slaves.”

That last line, “…I wake up every morning in a house that was built by slaves,” was the focus of much attention, with some conservative critics calling the claim false or misleading. The record was set straight in a New York Times article of July 26th, “Yes, Slaves Did Help Build the White House”.

While it important to address sins of the past, it is always wise to focus on today’s indiscretions too. Yes, a forward-looking perspective is always prudent. The slavery problem that is pressing today is modern slavery, and it’s a shockingly huge problem.

In 2013, the Walk Free Foundation, founded by Australian mining magnate Andrew Forrest, created the Global Slavery Index (GSI) to track and report modern slavery worldwide. The GSI defines modern slavery as “situations of exploitation that a person cannot refuse or leave because of threats, violence, coercion, abuse of power or deception, with treatment akin to a farm animal.” With data on 167 countries, the Global Slavery Index estimates that over 45.8 million people find themselves in some form of modern slavery today.

According to the Global Slavery Index, over 58 percent of slaves today live in just five countries. India’s embrace of slavery is astounding, with over 18 million Indians enslaved today – over 4.5 times more than the U.S. had during its peak decade of the 1860s.1  China, Pakistan, Bangladesh, and Uzbekistan round out the top five offenders. Seventeen countries have at least one percent of their populations living in modern slavery, with North Korea leading the pack, as the accompanying table shows.

 

While it might be politically correct to exclusively spend time gazing into the rearview mirror and speaking only about the history of slavery in the U.S., it would be wise to speak of the 45.8 million who are enslaved today. It’s time to shine a light on today’s slave trade and the countries where slaves reside.

Financial Times Offers Wrong Response to China’s Steel Overcapacity

The Financial Times (FT) published a June 9, 2016, editorial titled, “Coping with a world of too much Chinese steel.”  (Link)  The editorial makes the case correctly that China’s steel overcapacity has spilled onto world markets and is having negative effects on steel makers in the European Union and United States.  It appropriately argues against Western governments nationalizing their steel industries or providing “other indefinite state support.” 

The editorial errs, however, in suggesting that “the best option is a judicious and limited use of trade remedies against subsidized imports.”  Economists have understood for decades that when a nation imposes trade restrictions, it always reduces its own economic welfare.  It is difficult to argue that imposing a policy measure that reduces a nation’s economic welfare is a good thing to do.  The country would have been better off simply by doing nothing.  (“Don’t do something, just stand there!”)

There are two easily understood reasons why imposing trade restrictions won’t help the situation.  The first is that the global overcapacity is so great that market prices for commodity grades of steel are low worldwide.  If imports of hot-rolled steel from China are limited by newly implemented antidumping or countervailing duty (AD/CVD) measures, relatively low-priced hot-rolled coil could easily be imported instead from countries such as South Korea, Brazil, or Turkey.  Curtailing imports from China is likely to provide relatively little relief to domestic steel manufacturers. 

The second reason is that restricting imports in an attempt to benefit steel producers will have the effect of increasing costs of production for manufacturers that use steel as an input.  These downstream users constitute a much larger segment of the economy.  In the United States, for example, data compiled by the Bureau of Economic Analysis (BEA) at the Department of Commerce indicate that economic value added by “primary metal manufacturing,” which includes steel, copper, aluminum, magnesium, etc., amounted to about $60 billion in 2014.  Downstream manufacturers that utilize steel as an input generated value added of $990 billion, more than 16 times larger.  Employment by primary metal manufacturers was 400,000, while downstream manufacturers employed 6.5 million, also 16 times greater.  Use of trade remedies against steel imports amounts to an attempt to benefit the few at the expense of the many.

To elaborate, the United States currently imposes some 150 AD or CVD orders against a large number of steel products from a large number of countries.  These restrictions have had the effect of making U.S. steel prices relatively high, while in the rest of the world they are relatively low.  Still, important portions of the American steel industry have not been sufficiently profitable.  United States Steel Corporation, the country’s largest producer, reported a 2015 loss of $1.5 billion.  So U.S. prices are somewhat high, but not high enough to cure the industry’s commercial problems.

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Playing the China Card Wisely Is Obama’s Last Best Chance to Sell the Trans-Pacific Partnership

The Trans-Pacific Partnership is the economic centerpiece of the Obama administration’s much ballyhooed “strategic pivot” to Asia, which – in 2009 – heralded U.S. intentions to extricate itself from the messes in Iraq and Afghanistan and to reassert its interests in the world’s fastest-growing region. After six years of negotiations, the comprehensive trade deal was completed last year and signed by its 12 charter members earlier this year. But the TPP must be ratified before it can take effect – and prospects for that happening in 2016 grow dimmer with each passing day.

One would assume TPP ratification a policy priority of President Obama. After all, he took office promising to restore some of the U.S. foreign policy credibility that had been notoriously squandered by his predecessor. If Congress fails to ratify the agreement before Christmas, Obama will leave office with American commercial and strategic positions weakened in the Asia-Pacific, and U.S. credibility further diminished globally.  The specter of that outcome would keep most presidents awake at night.

In Newsweek today, I put most of the blame for this precarious situation on a president who, throughout his tenure, has remained unwilling to challenge the guardians of his party’s anti-trade orthodoxy by making the case for trade liberalization generally, or the TPP specifically:

Superficially, one could blame election-year politics and a metastasizing popular antipathy toward trade agreements for the situation, but the original sin is the president’s lackluster effort to sell the TPP to his trade-skeptical party and the American public. In the administration’s division of labor, those tasked with negotiating the TPP kept their noses to the grindstone and brought back an agreement that reduces taxes and other protectionist impediments to trade…

Emphasize Security in Dealing with North Korea

North Korea is a multilateral conundrum. Despite enduring decades of confrontation and isolation, the Democratic People’s Republic of Korea continues to accelerate nuclear development, miniaturize nuclear weapons, and produce intercontinental missiles.

Failure to restrain the DPRK, along with understandable horror at its mass violation of human rights, caused some analysts to urge Washington to emphasize improving human rights and overthrowing the Kim dynasty. For instance, Carl Gershman of the National Endowment for Democracy recently argued that “human rights must come first.” After the recent tightening of sanctions against the North, the Wall Street Journal declared: “Now is the time to squeeze even harder with a goal of regime change.”

The North Korean nuclear crisis has been raging for more than a quarter century. Unfortunately, dealing with Pyongyang requires choosing the least bad alternative.

So far negotiations have failed. Few observers believe the DPRK is prepared to trade away its nuclear arsenal.

China Military Build-Up Threatens U.S. Dominance, Not Its Security

The U.S. dominates the globe militarily. Washington possesses the most powerful armed forces, accounts for roughly 40 percent of the globe’s military outlays, and is allied with every major industrialized state save China and Russia.

Yet the bipartisan hawks who dominate U.S. foreign policy see threats at every turn. For some, replacing the Soviet Union as chief adversary is the People’s Republic of China. They view another military build-up as the only answer.

The PRC’s rise is reshaping the globe. Of greatest concern in Washington is China’s military build-up. The Department of Defense publishes an annual review of China’s military. The latest report warns that the PRC “continued to improve key capabilities,” including ballistic and cruise missiles, aircraft and air defense, information capabilities, submarines, amphibious and airborne assault units, and more.

Obama Announces End to Arms Embargo on Vietnam

President Obama’s trip to Asia is off to a running start with the announcement that the United States will lift a decades-long American arms embargo on Vietnam. Initial commentary on the announcement has been generally positive, portraying the end of the embargo as the most recent in a string of events signaling improved relations with America’s former adversary in an increasingly dangerous region. So, what comes next in the U.S.-Vietnam defense relationship?

1. How will China react?

China’s Ministry of Foreign Affairs had a relatively quiet response to the announcement thus far. However, increased American military support for Vietnam fits into the narrative of a U.S.-led effort to contain China. It would not be surprising if more aggressive rhetoric comes to the fore in Chinese media over the coming days. China has also shown a willingness to respond to U.S. shows of force or resolve with military displays of its own. Vietnam’s capacity to resist Chinese coercion should increase once arms sales begin, but if China responds to such sales with assertive counter-moves then the security dilemma in the South China Sea (SCS) could become worse.

2. What equipment will Vietnam buy?

Given the challenges it faces in the SCS, Vietnam will likely place a premium on military hardware that improves maritime domain awareness and the ability to quickly respond to infringement on its claimed territories. For example, in 2015 the United States pledged $18 million to help Vietnam purchase U.S.-made Metal Shark patrol boats for its coast guard. Sales of more advanced or lethal systems may be more difficult given the challenges of integrating such systems into an arsenal already dominated by Russian weapons and the high price tag of U.S. hardware. Additionally, Vietnam has overlapping territorial claims with the Philippines, a U.S. treaty ally. Vietnam-Philippine squabbling is not the primary threat in the SCS right now, but Washington policymakers have an incentive not to approve sales of equipment that could give Vietnam a significant advantage over the Philippines.

3. How does lifting the arms embargo advance U.S. goals in the SCS?

In a press conference announcing the end of the embargo, President Obama stated “the decision to lift the ban was not based on China,” but was part of a broader process of normalization with Vietnam. This statement is only partly true. On the one hand, U.S.-Vietnam relations have greatly improved over the years and this is the next logical step in normalization. On the other hand, assertive Chinese activity in the SCS is the most pressing security concern in the region and lifting the arms embargo should improve Vietnam’s ability to deal with it. Improving the military capacity of U.S. allies and partners is a low-risk way to increase the costs of Chinese actions, which seems to be the current U.S. objective in the SCS. Unfortunately, “imposing costs” isn’t an end state.

Lifting the arms embargo on Vietnam is an important step toward the best course of action for the United States in the SCS: using weapons sales and economic support to bolster the self-defense capabilities of friendly states. It will be virtually impossible for America’s partners to achieve military parity with China on their own, but with the right mix of weapons systems and strategy they could present serious challenges to Chinese military action. More capable allies and partners should enable the United States to be a balancer of last resort in the SCS, instead of the first line of defense.