In economic warfare, President Trump is about to fire the first shots…
From Zero Hedge:
Today at 3pm, President Trump will sign a memo addressing “China’s laws, policies, practices, and actions related to intellectual property, innovation, and technology” effectively launching the first shot in what many predict will blossom into an all-out trade war with China. As discussed over the weekend, administration officials said Saturday that memo will direct U.S. Trade Representative Robert Lighthizer to consider investigating China over its IP policies, especially the practice of forcing U.S. companies operating in China to transfer technological know-how.
Predictably, China is not happy. In an editorial published in the China Daily, the government lashed out at Trump, warning him that by “politicizing” trade, he risks “exacerbating” the US’s “economic woes,” and “poisoning” the relationship between the world’s two largest economies.
“In an editorial, the official China Daily said it was critical the Trump administration doesn’t make a rash decision it will regret.
“Given Trump’s transactional approach to foreign affairs, it is impossible to look at the matter without taking into account his increasing disappointment at what he deems as China’s failure to bring into line the Democratic People’s Republic of Korea,” the English-language paper said.
‘But instead of advancing the United States’ interests, politicizing trade will only acerbate the country’s economic woes, and poison the overall China-U.S. relationship.’”
For those who’ve been too busy enjoying their August vacation to keep track of all the international conflicts flaring up around the globe, Trump is preparing to order US Trade Representative Robert Lighthizer to launch an investigation under section 301 of the Trade Act of 1974. The law, which was commonly used during the Reagan administration, has fallen into disuse since the launch of the WTO. It has more recently been used as a tool by trade unions. The investigation should pave the way for the US to take potentially aggressive retaliatory actions against China, such as imposing tariffs on Chinese imports or rescinding licenses for Chinese companies wanting to do business in the US.
During the campaign, Trump’s rhetoric about “punishing” the Chinese for their unfair trade practices helped differentiate his message from milquetoast centrists like “low energy” Jeb Bush. But after triumphing over Hillary Clinton, and subsequently filling his administration with Goldman Sachs alumni like Gary Cohn, the president appeared to change his mind. However, according to media reports, he had yet another change of heart earlier this summer, when he started siding with Steve Bannon and the anti-globalist contingent of his advisers during discussions about trade.
And after initially delaying the investigation two weeks ago on the advice of his new chief of staff, General John Kelly, it appears Trump is finally ready to disrupt one of the world’s most complex bilateral trade relationships. The editorial also pushed back against the notion that China is somehow responsible for Pyongyang’s actions.
“The China Daily said it was unfair for Trump to put the burden on China for dissuading Pyongyang from its actions.
‘By trying to incriminate Beijing as an accomplice in the DPRK’s nuclear adventure and blame it for a failure that is essentially a failure of all stakeholders, Trump risks making the serious mistake of splitting up the international coalition that is the means to resolve the issue peacefully,’ it said.
‘Hopefully Trump will find another path. Things will become even more difficult if Beijing and Washington are pitted against each other.’”
The move against China over trade was also seen here as an attempt to distract attention away from Trump’s domestic problems. “Bashing China cannot solve U.S. economic problems, experts say,” the state-run Xinhua news agency proclaimed. The nationalist Global Times newspaper even tried to link developments to violence and “racial hatred” that broke out in Charlottesville at the weekend.
The source of “global instability may not be North Korea’s nuclear ambitions nor Europe’s regufee crisis, but the chaos in the US,” it wrote. “The public is also concerned that Trump is using international disputes to divert public attention away from the domestic turmoil.”
That said, the argument that China doesn’t bear some responsibility for the North’s actions is refuted by simple economic staitstics. China is North Korea’s most prominent benefactor, and its economic support has been a lifeline to the North’s government; without it, the Kim regime probably would’ve collapsed decades ago. China is responsible for 90% of North Korea’s foreign trade.
Last month China announced that imports from North Korea fell to $880 million in the six months that ended in June, down 13 percent from a year earlier. Notably, China’s coal imports from North Korea dropped precipitously, with only 2.7 million tons being shipped in the first half of 2017, down 75 percent from 2016. But a 29 percent spike in Chinese exports to North Korea — North Korea bought $1.67 billion worth of Chinese products in the first six months of the year — helped push total trade between the two countries up 10 percent between January and June, compared with the same period last year
China also harbors North Korea laborers whose remittances are another crucial source of foreign currency for the North’s economy. According to a recent poll, nearly two-thirds of US voters believe China should take a leading role in the de-nuclearization of the Korean peninsula.
As we wait for Trump to give the order, the only question left is will the US and China reach a last-minute deal to once again delay the investigation. It’s not out of the question: President Xi Jingping is hoping to tighten his grip on power at this fall’s National Congress of the Communist Party. In the meantime, maintaining economic stability remains paramount.