China Trade Practices Impact U.S. Economy, Korean Crisis

The New York Analysis of Policy and Government presents a three-part examination of China’s trade relations with both the United States and North Korea.

U.S. policy makers need to take an intensive look at the entire framework of Chinese-American economic relations.  This is an urgent issue, since Beijing’s continued support of North Korea is the linchpin allowing Kim Jong-un to develop his nuclear arsenal, and the threat of trade restrictions may be the only way to change that paradigm.

During his presidential campaign, President Trump sharply criticized the imbalance in U.S.-China trade, and Beijing’s unfair economic practices. At the time, he proposed significant tariffs. Now, in the wake of North Korea’s threats of nuclear attack, President Trump has gained some concessions from China, a feat his predecessors failed at.  But are they sufficient, and will Beijing live up to its word?  Unfortunately, based on precedent, the outlook must be less than optimistic.

According to the 2016 Report to Congress of the U.S.-China Economic and Security Review Commission China’s actions supporting North Korea are similar to its general foreign relations “…hopes that China would stick to its path of “peaceful development” and become a global power that upholds and strengthens the rules-based liberal world order have not been met. China’s leaders have taken advantage of the existing international order when convenient and sought to rewrite the rules when it benefits them. This was starkly illustrated this year by an international tribunal’s ruling that many of China’s activities in the South China Sea are unlawful—and by China’s obstinate rejection of the proceedings. On North Korea, although China signed on to the UN Security Council’s strictest sanctions on Pyongyang to date, there are already indications that China does not intend to enforce them in a way that might deter Kim Jong-un from his increasingly dangerous behavior, illustrated by two nuclear tests and a dozen ballistic missile tests in 2016 alone. Closer to home, China has been employing new levers of coercion in Taiwan and Hong Kong in ways that infringe upon longstanding practices and agreements, and which threaten to erode autonomy and democratic values in both places.”

The issue may be confronted soon.  According to the U.S. Commerce Department,  on September 24, U.S. Commerce  Secretary Wilbur Ross and Ambassador Terry Branstad met separately with Premier Li Keqiang, Vice Premier Wang Yang, Minister Miao Wei, NDRC Chairman He Lifeng, and Economy and Finance Director Liu He. The Secretary also met with Minister of Commerce Zhong Shan.

The meetings were in anticipation of President Trump’s planned visit to Asia later this which is expected to concentrate on, in addition to the North Korean crisis, a range of trade issues including the need to rebalance bilateral trade and investment relations, protect intellectual property, lower tariffs and non-tariff barriers, and guarantee fair and reciprocal treatment for U.S. firms. According to the Commerce Department, “Ross is seeking to reduce the trade deficit through increased exports of high-value U.S. goods and services to China and improved market access for U.S. firms.” However, the possibility of stringent trade restrictions in reaction to China’s continued support for North Korea will certainly be a factor.

China’s economic relations with America has been a contentious issue since at least since the 1990’s.  President Bill Clinton greatly assisted Beijing’s rise to financial prowess both through his authorization of the sale of Cray super computers, and through his signing of legislation that freed Beijing from having to get yearly recertification of its trade status, as well as guaranteeing Chinese the low-tariff access to the U.S. market.

Investopedia notes that “…the trade balance of the U.S. vis-à-vis China is negative, and this deficit is financed partly by the capital flow from China. That is to say, China is also the largest creditor of the U.S. holding the largest part of the US Treasury securities with an amount of $1,270.3 billion as of May 2015. This is about one-fifth of the total US treasury securities ($6134.8 billion as of May 2015) outstanding.” In essence, in return for lending funds to federal elected officials who may use them to finance popular programs, those politicians have not taken action against Beijing’s unfair economic practices.

The Report continues tomorrow.