Thursday, April 4, 2019

China Remains Steadfast In Trade Talks Yielding Nothing

China's C919 Airplane Will Compete With Boeing
The fact is, China has little intention of altering its course and continues to concede little as trade talks drag on. Their goal is to wear-down the impatient Americans. China is a state-run economy based on a business model that is geared to expand by crushing the competition by using trade as a weapon. The simple truth is China has no intention of being locked into producing low-end manufacturing of basic goods but is determined to move into high-tech products.

Beijing has tried hard to convince Washington to lift all of the trade war-inspired tariffs on Chinese goods as part of a sweeping trade accord. Bloomberg reports China is again offering up pathetic tokens in an effort to take American eyes off important issues. Up until now, this strategy has worked with the White House delaying their planned tariff increase from 10% to 25% on $200 billion of Chinese goods. These "shiny baubles" include extending the suspension of retaliatory auto tariffs imposed last year during the trade debacle and re-promising to tighten controls of the deadly synthetic opioid fentanyl. Neither of these are new concessions but Beijing is hoping they will help foster a "positive atmosphere" for talks by "baffling us with bullshit."

Sadly, President Trump has tied so much of his success to climbing stock market valuations that he appears to be ready to capitulate and fold like a cheap umbrella on his demands China levels the field when it comes to trade. This translates into Trump taking any deal so he can claim victory. Many critics and even Trump's supporters see this is becoming a pattern and are beginning to discount many of his claims. Bloomberg reported Wednesday the goal over the next several days "is to strike an agreement on the core issues so President Donald Trump and Chinese leader Xi Jinping can hold a ceremony to sign a deal." To achieve that, it is said, Lighthizer, Mnuchin, and Liu held a working dinner Tuesday night. Knowing how eager the President has become to reach an agreement has removed much of China's need to compromise.

There is even talk of a 2025 deal implementation target, this is totally insane and shows America has no stomach for playing hardball. Such a time frame would fall into Trump's second term if he can win re-election This is the same as America admitting the for all practical purposes the talks and the deal have been a sham. This could give markets a brief push higher by allowing the US-China trade war to vanish in the rearview mirror. Still, it solves none of the problems that made the talks necessary in the first place. Overall, while the general view is that some progress has been made, not enough has been done to adequately address difficult issues such as intellectual-property protection. If Trump signs the current deal, it virtually assures that there would be no IP protection and China will revert to its old ways such as reverse engineering American products and stealing technology. 

China Excels In "No Nonsense" Manufacturing
A great deal of China's economic plan centers around both state-owned and private firms investing in and acquiring foreign companies for the purpose of stealing their technological innovations. Global investment numbers show that in 2016, the top two industries in which Chinese firms engaged in foreign acquisition deals were manufacturing (at about $30 billion) and information technology/software (about $26.4 billion). It is also important to note that in order to receive permission for foreign companies to do business in China it is common for the Chinese to insist the company shares and transfers their tech knowledge to their Chinese joint-venture counterparts which excel in "no-nonsense" manufacturing.
 
Circling back to the issue of China and its strategy going forward, people are naive if they do not recognize China will do everything possible to exploit the distinct advantage a state-driven economy has over free enterprise, With an expanding military armed with a slew of modern cutting-edge weapons produced at home China intends to be ready to flex its muscle if necessary. Predatory in nature, such systems have the ability to quickly exploit the weaknesses of its competitors. It is important we recognize China is a state-run economy based on a business model that is geared to expand by crushing the competition. Subsidizing those companies working within its system in a multitude of ways helps China achieve this goal. 

China's history of exporting goods at cost or slightly below cost in exchange for manufacturing jobs is predatory and we in America are their prey. This happens because countries are willing to allow China to move ahead unrestricted. Subsidizing those companies working within its system in a multitude of ways helps China achieve this goal. Over time the trade imbalance being created will eventually lead to conflict far greater than what we face today. Unfortunately, it is very likely even a good trade deal with China will by itself do very little to reinvigorate the American economy, however, a real deal could alleviate some of the damage China is inflicting upon us every day.


Footnote 1; The link below is to an article about China's new C919 airplane that will soon compete directly against Boeing.
 https://brucewilds.blogspot.com/2019/03/chinas-c919-poses-major-threat-to.html

Footnote 2; This is all very reminiscent of Trumps move to force funding to build a wall. The link to an article about the failure of an expensive government shutdown to produce anything of substance can be found below.
https://The Partial Government Shutdown - An Expensive Farce.html

1 comment:

  1. Those who ignore history are doomed to misinterpretation of current events. I remember clearly how the Wall Street Journal used to report, up until about perhaps a dozen years ago, on how Wal-Mart executives applied severe pressure on Chinese factories to reduce the prices of their exports, demanding ever declining prices on the same items year after year. The Chinese manufacturers had no choice but to bend over backwards to comply, sacrificing their workers' interest -- not to mention their country's environment -- in the process. Now the tone of Western journalism has completely changed; it is the Chinese who have been predatory and exploitative. The unsavory practices of modern day business enterprises, driven largely by total fixation on short-term profits and, yes, the benefits to American consumers, incidental or not, are completely overlooked or swept aside. Are we not trying to make a scapegoat of China for our socio-economic ills?

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