Leadership issues in future trade relations between China and the United States
 Two separate, but similarly determined leaders have emerged in China and the United States with the advent of Xi Jinping in Beijing and Donald Trump in Washington. Both are very different from those who preceded them.
To be fair, President Trump started the recent trade war, though President Xi was making what has been perceived as mini, if not micro aggressive moves before that, such as his Belt and Road scheme and the seizure and militarisation of the Spratly Islands in the South China Sea, contrary to the ruling of the Permanent Court of Arbitration in the Hague.
For his part, President Trump decided to act on long-standing popular trade grievances, against the advice of the Wall Street voices of globalisation that seek to preserve the soaring China trade.
But despite such blandishments, President Trump stuck to his popular China trade policy of "reciprocity or else" despite accusations of "protectionism" from the media and the establishment of his own Republican party.
Japan's Nikkei Asian Review traces the roots of the trouble back to when the United States was an embryonic republic after the American Revolution in an article entitled: "Want to Understand the US-China Trade War? Turn Back the Clock to 1784".
Of course it wasn't the Americans who had the first dispute with China over trade. It was the British.
Then as now, Chinese trade policy was governed by the principle that nothing was allowed unless permitted while the west held that everything was permitted unless forbidden.
Thus, China would only allow the export of tea, while growing the tea plant itself remained a state secret. It would also allow the export of silk, though not the silk worm and the means of production. Chinese furniture too enjoyed a brisk sale in Europe and America in the 18th and 19th centuries. But in exchange the Chinese would only accept silver.
This led to a global imbalance of silver bullion in China's favour until the west found a commodity for which the Chinese would part with their silver, however surreptitiously. And that commodity was opium.
This led to the first Opium War after which the Chinese permitted treaty ports to be established throughout China. Apart from the entirety of the Island of Hong Kong, these consisted of urbanised strips a typically a quarter mile deep and a mile to two miles along the waterfront in major cities, though much larger in the case of Shanghai. Through these treaty ports goods could be bought and sold under the laws of the various western powers that shared the space.
These concessions, centred on a "bund", a Persian word for urbanised embankment, A mid-sized one was in Wuhan, then called Hankow, with Hankou being the name that bund district retains to this day.
In the middle reaches of the Yangtze, the Hankow treaty port area was divided into 40- to 150-acre allotments to the British with biggest and Russia with the smallest, with Germany, France and Japan controlling the other. The US while active in these treaty ports never had a plot of its own, but acquired space from others and possessed some of its finest buildings.
But rising Chinese nationalist sentiment expressed in lethal rioting shut down the weaker treaty ports in the 1920s and '30s. By the 1940s, only the French and Japanese concessions were operating. That was because the occupying power, Japan, was allied with the Germans who had occupied northern France, with a treaty with collaborating southern Vichy France, which was allowed to administer French colonies under Tokyo's protection.
All that was swept away with advent of the Communist regime, which led to China's isolation until the age of Deng Xiaoping through the 1980s, whose "opening up" policies led to 30 years of relative prosperity and galloping GDP growth the like of which the world has never seen.
Most welcomed this development when at last it appeared that China appeared to behave like other co-operative nations. All this culminated in China joining the World Trade Organisation (WTO) in 2001, a move that had it achieve double digit GDP growth for next decade.
But the Nikkei Asian Review article noted "there was also a growing consensus within the US that China’s entry into the WTO heralded every American economic ill from mass unemployment to the devastation of its manufacturing base. There is doubt about Chinese motives and an underlying fear of China as a dangerous geopolitical rival set on world domination."
China disagreed, of course, “such doubts come partly from the shortage of knowledge of China, and partly from some countries advancing their own interests,” countered Xie Fuzhan, president of the Chinese Academy of Social Sciences.
But what was evident to all, not only in America but in Europe too, was that whatever was made locally was now made in China, or increasingly on some ever more distant shore as the Chinese standard of living rose, and ironically priced themselves out of markets they themselves had created. This prompted some production of low-end Wal-Mart consumables to move away from the coast to inland centres where there was still an abundance of affordable labour. Or alternately to Vietnam, Cambodia, Burma and Indonesia. As GDP soared some alleged that China clung to the trading concessions conferred on third world WTO members well after these advantages ceased to be appropriate.
Overall, these developments had their goods and bads. All welcomed the accompanying dramatic reduction in world poverty. India's living standard were rising too as were those in sub-Saharan Africa, where container terminals were popping up, showing that there were enough local consumers to justify the container loads of goods people were now able to buy.
To this we add China's Belt and Road initiative, forging links and plugging holes in supply chains, that not only facilitated imports, but made, or would make possible, local producers gain access to world and regional markets. And with mobile phones as ubiquitous as plastic bottles, e-commerce facilitated the ordering and delivery of such items. In short, there have been many positive developments in the world that are ignored by the fault-finding media.
Nevertheless, many people, albeit not very important people, in America and Europe have been hurt by offshore manufacturing and want to reverse engines on the process. What few unskilled or low-skilled jobs there are also being taken by those streaming in illegally from Latin America the southern border.
Politically, both left and right are divided internally among themselves on immigration. Half the left fears that low-wage immigrants depress the price of their labour, but other leftists see the newcomers as fresh reinforcements in their perrennial battle against the right.
The right is equally divided. Half see the influx as a source of cheap labour they can profitably employ, while the other half sees the newcomers as a cultural threat that will change the character of the country and bring about higher taxes and a reduction of free markets.
After all, before the 1848 American-Mexican War, California, Texas, New Mexico and Arizona were part of Mexico. Today, vast influxes of illegal Latin American immigrants are forming unassimilated enclave communities, and can over time change the language of work and local government from English to Spanish - and perhaps one day seek re-union with Mexico.
Leftwing parties in America have abandoned their old core constituency, the working class, now casting them aside as "privileged whites", or worse still, as "toxic white males". The left now includes, what one would have thought as rightist too-big-fail Wall Street, which now favours greater protective regulation and high compliance costs and crippling fines that discourage SMEs, symbolised as Main Street small business, whose disappearance through mergers and acquisitions enlarges market share for the larger companies.
Right-wing parties favour unrestricted free markets as the way forward and see re-training as the solution to growing working class unemployment without giving much thought to the availability of such high-skilled jobs or the ability of low- or unskilled workers to acquire such skills. The US military using IQ tests long ago found that there were 10 per cent of males that were mentally unfit to occupy even the lowest ranks in the armed forces. Thus in an increasingly complex world it will be hard if not impossible to find useful employment for 10 per cent of the population.
The left, now bereft of much of its working class support, is largely sustained by the vast intelligentsia, and its burgeoning upper ranks of journalists, NGOs, academics, civil servants etc, who also welcome the availability of affordable household servants that unrestricted immigration provides.
While the death of domestic first world manufacturing and unrestricted immigration topped the concerns in western public opinion polls, the media, academic bureaucratic element tend to favour regulations that result in expansion of public sector jobs that immune to the effects of market forces, and jobs that address global warming, which ranks low or not at all in public opinion polls.
Thus, the left and right party establishments, whose policy differences are palpable, but not that distant, and whose willingness to act on matters of genuine public concern, is largely absent except in election speeches, have been found wanting by an electorate that actually wants something done.
Hence the triumph populism and Donald Trump. In one case the phenomenon has united a right-wing father of our acquaintance and his leftwing son. Both now believe that some manufacturing can remain in North America if we try to make it so, and that however incomplete the effort is, it is still worth making. Both, once opposed, now think immigration should be restricted to those who appear likely to contribute to their host countries.
And on another level, they believe that trade with China should be reciprocal, that at the very least, what can be sold in one country should be able to be sold in the other and trade deals should be transparent and apparent to all.
The loss of the House of Representatives by the Republicans was a blow to these populist forces, but it appears that the populist forces, an apparent union between left and right may well endure - at least long enough for politicians to act on matters that the unimportant people care about - even if populist champions and their supporters enrage their respective political establishments on the right and left.
With any luck, both China and America will come to a compromise on trade so the prosperity of one does not lead to the impoverishment of the other. |
