Trump: China Waging “Economic War” Against the USA?

From Real Clear Politics:

Trump responded Sunday at a rally in Staten Island, NY, saying that over the course of the past thirty years, China has “waged an economic war against [the United States].”

“You have to look at my response to China,” Trump said excitedly. “Because it is what someone has to say. Because we can’t continue to get ripped off like we’re being ripped off. You’ve got to look at it… I’m not talking about war. But they have waged economic war against us.”

“And I’m not angry about China, in fact I respect them… I’m angry at our leaders for being so incompetent that they allow it to happen. And I said this as part of my response to the Wall Street Journal when they just called. I said, in the history of the world, this is the greatest theft ever perpetrated by anyone or any country, what China has done to us.”

“I see the empty buildings all over Staten Island,” he said. “I see them all over… Really really sad. That’s not going to happen anymore with me.”

“The truth is, we have all the cards,” Trump said.

Economic war against the United States? Nonsense. China has been providing relatively high-quality goods at bargain-basement prices to American consumers for over 30 years. They buy huge amounts of US government debt; in fact, they are the largest foreign holder of US debt. The Chinese government has aggressively pursued a policy of cheapening the Chinese yuan against the dollar, which allows Americans more purchasing power of Chinese goods.

This isn’t a war. This is a blessing for American consumers. Can you imagine what would happen if China stopped producing the kind of low-cost, high-quality goods that fill Wal-Mart and Target? The American standard of living would decrease substantially. Or rather, the cost of our current middle-class standard would go up. I’m not saying we’d all be reduced to a third-world living, but we’d have far less spending money on our hands after buying the essentials.

Trump continues:

China is upset because of the way Donald Trump is talking about trade with China. They’re ripping us off, folks.

It is time. I’m so happy they’re upset. They haven’t been upset with us in thirty years.

They’re never upset. We have a trade deficit with China of $500 billion per year. Okay? They tax. And you know they said we’re not living up to treaties. They’re the ones not living up to to agreements. They tax. I have friends who are manufacturers who cannot get their product into China, and when they do, they have to pay a tax on it.

…You have to look at my answer. My response to China. Because it is what someone has to say. Because we can’t continue to get ripped off like we’re being ripped off. You’ve got to look at it.

Preposterous. We’re not getting ripped off. We’re being blessed. In this day and age, you can walk into a Wal-Mart with $1000 and walk out with a household’s worth of decent-quality goods shipped in from China. This is astounding. Totally unprecedented in world history.

I agree that someone is being ripped off. But who? If the Chinese government purposefully keeps the value of their money low, encourages cheap exports while penalizing imports, and uses Chinese tax dollars to fund the US government through purchasing debt, then who is being ripped off? I can tell you this: It ain’t Americans.  On the contrary, we’re the benefactors.

Answer: The Chinese government is ripping off their own people. The Chinese government is waging economic war against Chinese consumers. In a sense, anyway. They aren’t trying to destroy Chinese consumers or reduce them to poverty. But insofar as anything resembling an “economic war” is going on, it is being waged by the Communist Party and the People’s Bank of China against the wallets of their own people.

CHINA AND MERCANTILISM

China is not a Communist country. It hasn’t been since 1978, when Deng Xiaoping began privatizing agriculture, leading to an eventual privatization of most commercial sectors in the economy. In the modern age, China is a mercantilist country. The Chinese government is entirely dedicated to being the low-cost factory of the world to developed nations. They pursue government policies that subsidize exports and make the yuan cheaper compared to other currencies abroad.

Why do they do this? To keep people in China employed. If goods are cheap and the other consumers of the world are buying, then factories and assembly plants can stay open and keep Chinese people employed. It’s not a great life, on-the-whole: the median salary of a Chinese laborer is roughly $5,000 annually. But some money is better than none. As long as people are employed in China, there is less likelihood that the people will revolt and continue the grand Chinese tradition of executing failed political leaders. Nearly 300 million people have migrated from the rural areas into the cities to work at factories. If these people lose their jobs, or lose a lot of money, things are going to get ugly. The Chinese government knows this, and it makes them afraid.

As for discouraging imports, they do this for the same reason that Trump wants to: to try forcing consumers into purchasing goods made at home, which is a stupid idea. When people want to buy goods from abroad, it’s usually for good reason: the goods are either cheaper or they’re of higher-quality. If Chinese consumers would like to buy from US companies but cannot due to Chinese law, that’s the fault of the Chinese government. But retaliating with a similar policy in America is going to inflict the same harm on American consumers. Will it also inflict harm on the Chinese economy? Sure. But I don’t care about inflicting harm on the Chinese government and the Chinese people. I want inexpensive, high-quality goods. Is that too much to ask?

When talking about imports, people often say things like “Our money is being taken by other countries because their prices are so low! China is taking billions of dollars from us every year that could be spent here in America instead!”

Allow me to respond: Money doesn’t leave the country. Way too often, I hear people insist that American dollars are fleeing to China. But this makes zero sense. Think about it: What are people going to do with American dollars in China? The currency of China is the yuan. You can’t go to a store in China and legally buy anything with dollars. Chinese taxes must be paid in yuan. Dollars stay in America; it’s only ownership that changes. If American retailers are buying goods from Chinese manufacturers, the Chinese companies are paid in dollars. But dollars are only usable in the USA. So a Chinese company will either save the money or spend it, but this is no different from what an American company would do. The USA does not lose any money by dealing with Chinese companies.

(Exception: third-world countries circulate cash dollars, but the amount of dollars sent to third-world nations is too small to be relevant.)

Furthermore, we are talking about digital dollars in bank vaults, not actual cash. Digital dollars stay in the US banking system. So when purchases are made from Chinese manufacturers, ownership over digital dollars in the US banking system changes. But that’s it. The money still has to be spent inside the USA. The money does not go anywhere.

TRUMP AND CHINA

People need to be careful when talking about China. “China does this. China does that.” But who are we really referring to? It’s not like everyone in China is hooked into a huge brain machine that turns them into a hive-mind collective. If Trump says, “China wages economic war by devaluing their currency and penalizing imports from the US while unfairly subsidizing exports”, then he is talking about the Chinese government. But Chinese consumers are the ones paying for it, not us. They’re the ones sitting on piles of inflated yuan with lower purchasing power. They’re the ones who have to pay an extra tax on goods bought from firms outside of China, which is totally unnecessary. They’re the ones who have their tax yuan spent on buying US treasury debt to keep the mercantilist game going, when those taxes could be hopefully spent to improve their lives instead.

Trump may or may not believe what he says. I have no doubt that he is devilishly smart. It’s possible he knows the truth of the situation, but realizes that spinning it as an economic war against the US has more political leverage. I’d love to get into his head and find out.

There ain’t no economic war between the US and China. There is an economic war between governments and their own people, but that has nothing to do with bilateral trade relations between China and the USA.

CONCLUSION

Instead of mutual suspicion and hatred, let me suggest this: the common men in America and China should look across the sea to each other, nod solemnly, and raise a beer in mutual honor before downing them in one shot. Then they should both leap onto their respective government monsters and start pulling them apart, piece by piece. Let free trade ring.

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