Strategic Rivalry With China

Slowly but surely, America’s relationship with China is becoming a major flashpoint within relations not only between Washington and Beijing, but within the U.S. and between the U.S. and its European allies.

A Brookings Report issued in June notes that “that while both the United States and Europe are both moving toward a tougher and more critical view of China, European governments aren’t anywhere near as tough. Instead, they are trying to advance their distinct interests, which means emphasizing cooperation and partnership with China along with vigorous competition and criticism… the official EU statement issued after the summit is headlined: ‘EU-China Summit: Defending EU interests and values in a complex and vital partnership.’The word “partnership” has basically disappeared in U.S. policy and most policy debates about China, replaced by “competition,” “rivalry,” even “confrontation.”

Donald Trump made a tougher stance towards Beijing a key part of his 2016 campaign, and has continued that theme throughout his presidency. Fury over the role of China’s malfeasance in the COVID-19 has solidified his stance.

Recently, The White House released a comprehensive examination of the strategic relationship with China. In essence, it describes past efforts at cooperation and urging that nation to become a part of the peaceful and cooperative world community, with a political system that defends basic human rights, as a failure. According to the study,

“Over the past two decades, reforms have slowed, stalled, or reversed. The PRC’s rapid economic development and increased engagement with the world did not lead to convergence with the citizen-centric, free and open order as the United States had hoped. The CCP has chosen instead to exploit the free and open rules based order and attempt to reshape the international system in its favor. Beijing openly acknowledges that it seeks to transform the international order to align with CCP interests and ideology. The CCP’s expanding use of economic, political, and military power to compel acquiescence from nation states harms vital American interests and undermines the sovereignty and dignity of countries and individuals around the world.”

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In the last few months of his administration, President Bill Clinton sign legislation which gave China essentially the same access to American markets as most nations. What followed was, in essence, an economic disaster for the U.S. Using a variety of illicit economic practices, Beijing devasted American companies and, in particular, devasted American manufacturing, blue-collar employment, and the pharmaceutical industry, a challenge that become particularly evident in the onset of the COVID-19 pandemic. While many are calling for tough sanctions in retaliation for Beijing’s actions, U.S. dependency on China for most of its medicines has restrained the nation’s ability to strike back.

Unfair trade and predatory financial practices are only part of the problem. Using its already massive and still growing economic clout, China has openly threatened retaliation against any who speak against it. An NBA player who criticized the Chinese Communist Party’s human rights record was silenced by his sports leadership following Beijing’s threats to cut off that league from its market.

In addition, Beijing has engaged in a level of espionage that made even the old Soviet Union’s spying look amateurish in contrast. Some of that effort is traditional cloak-and-dagger, stealing major secrets from the military and the companies it contracts with. But it doesn’t stop there. Even non-military related research is targeted to an unprecedented degree.

The Chinese Communist Party is not shy about its efforts. It has used it money muscles to meddle in U.S. education and cultural institutions, including altering Hollywood movie scripts and developing “Confucius Institutes” on college campuses to persuade students to see that nation as a benevolent presence.

Photo: Beijing evening (Pixabay)

Quick Analysis

Federal Reserve Report on the Economy

The Beige Book is a Federal Reserve System publication about current economic conditions across the 12 Federal Reserve Districts. It characterizes regional economic conditions and prospects based on a variety of mostly qualitative information, gathered directly from each District’s sources. The latest edition has just been released. We present key portions of the summary here. Overall Economic Activity Overall economic activity expanded slightly, on balance, since late February. Ten out of twelve Districts experienced either slight or modest economic growth—up from eight in the previous report, while the other two reported no changes in activity. Consumer spending barely increased overall, but reports were quite mixed across Districts and spending categories. Several reports mentioned weakness in discretionary spending, as consumers’ price sensitivity remained elevated. Auto spending was buoyed notably in some Districts by improved inventories and dealer incentives, but sales remained sluggish in other Districts. Tourism activity increased modestly, on average, but reports varied widely. Manufacturing activity declined slightly, as only three Districts reported growth in that sector. Contacts reported slight increases in nonfinancial services activity, on average, and bank lending was roughly flat overall. Residential construction increased a little, on average, and home sales strengthened in most Districts. In contrast, nonresidential construction was flat, and commercial real estate leasing fell slightly. The economic outlook among contacts was cautiously optimistic, on balance. Labor Markets Employment rose at a slight pace overall, with nine Districts reporting very slow to modest increases, and the remaining three Districts reporting no changes in employment. Most Districts noted increases in labor supply and in the quality of job applicants. Several Districts reported improved retention of employees, and others pointed to staff reductions at some firms. Despite the improvements in labor supply, many Districts described persistent shortages of qualified applicants for certain positions, including machinists, trades workers, and hospitality workers. Wages grew at a moderate pace in eight Districts, with the remaining four noting only slight to modest wage increases. Multiple Districts said that annual wage growth rates had recently returned to their historical averages. On balance, contacts expected that labor demand and supply would remain relatively stable, with modest further job gains and continued moderation of wage growth back to pre-pandemic levels. Prices Price increases were modest, on average, running at about the same pace as in the last report. Disruptions in the Red Sea and the collapse of Baltimore’s Key Bridge caused some shipping delays but so far did not lead to widespread price increases. Movements in raw materials prices were mixed, but six Districts noted moderate increases in energy prices. Contacts in several Districts reported sharp increases in insurance rates, for both businesses and homeowners. Another frequent comment was that firms’ ability to pass cost increases on to consumers had weakened considerably in recent months, resulting in smaller profit margins. Inflation also caused strain at nonprofit entities, resulting in service reductions in some cases. On balance, contacts expected that inflation would hold steady at a slow pace moving forward. At the same time, contacts in a few Districts—mostly manufacturers—perceived upside risks to near-term inflation in both input prices and output prices. Highlights by Federal Reserve District Boston Business activity expanded at a modest pace in recent weeks, and prices rose slightly. Employment was flat overall, but one retailer reported significant layoffs. Convention and tourism activity grew at a robust pace. Home sales increased on a year-over-year basis, marking a turnaround. The outlook ranged from cautiously optimistic to bullish. New York On balance, regional economic activity remained flat. Labor market conditions were solid and continued to normalize as labor supply and labor demand came into better balance. Consumer spending was unchanged after a weak first quarter. Housing markets strengthened, with the spring selling season picking up beyond the seasonal norm. The pace of selling price increases remained modest. Philadelphia On balance, business activity was flat in the current Beige Book period—after declining slightly last period. Employment edged up, despite staffing and recruitment efforts slowing to a crawl. Wage and price inflation continue to moderate; however, housing affordability continues to be a concern. Overall, the outlook is positive, as firms remained optimistic about expectations for future growth. Cleveland District business activity increased modestly, as did employment. Firms anticipated greater ease filling open positions, including those that have been particularly challenging, because of increased labor availability. Wage pressures continued to normalize, and some contacts reduced starting wages for new roles. Cost and price pressures changed little. Richmond The regional economy grew at slight pace since our previous report. Consumer spending on retail goods was mixed but spending on travel and tourism was up slightly. Fifth District port activity slowed and was impacted by the collapse of the Francis Scott Key Bridge. Employment growth slowed from a moderate to a modest rate in recent weeks, but wages continued to grow moderately. Price growth also remained moderate. Atlanta The Sixth District economy grew modestly. Labor markets continued to stabilize; wage pressures eased. Many nonlabor costs moderated. Retail sales were steady, but consumers remained price conscious. Tourism remained robust. Commercial real estate conditions slowed. Transportation activity was mixed. Manufacturing grew slightly. Loan demand was flat. Energy activity improved. Chicago Economic activity increased slightly. Employment increased modestly; business and consumer spending rose slightly; nonbusiness contacts saw no change in activity; and manufacturing and construction and real estate activity were flat. Prices and wages rose moderately, while financial conditions were stable. Prospects for 2024 farm income were unchanged. St. Louis Economic activity has continued to increase slightly since our previous report. Prices have increased modestly, as contacts are broadly feeling the pressures of increases in both labor and non-labor costs. The outlook was neutral to slightly optimistic, which is generally unchanged from our previous report, but better than one year ago. Minneapolis District economic activity grew slightly. Employment grew some, but labor demand was softer. Wage pressures were present but continued to ease, while price pressures ticked up. Consumer spending was mostly flat, and manufacturing slowed modestly. Commercial and residential construction improved […]