China might dance to Trump’s tune – for a while

Today in The Australian

As US and Chinese negotiators struggle to reach agreement ­before higher American tariffs on Chinese goods come into effect on March 2, it is increasingly clear that the Trump administration has two distinct, and potentially inconsistent, goals.

About Henry Ergas

Henry Ergas AO is a columnist for The Australian. From 2009 to 2015 he was Senior Economic Adviser to Deloitte Australia and from 2009 to 2017 was Professor of Infrastructure Economics at the University of Wollongong’s SMART Infrastructure Facility. He joined SMART and Deloitte after working as a consultant economist at NECG, CRA International and Concept Economics. Prior to that, he was an economist at the OECD in Paris from the late 1970s until the early 1990s. At the OECD, he headed the Secretary-General’s Task Force on Structural Adjustment (1984-1987), which concentrated on improving the efficiency of government policies in a wide range of areas, and was subsequently Counsellor for Structural Policy in the Economics Department. He has taught at a range of universities, undertaken a number of government inquiries and served as a Lay Member of the New Zealand High Court. In 2016, he was made an Officer in the Order of Australia.
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22 Responses to China might dance to Trump’s tune – for a while

  1. Ƶĩppʯ (ȊꞪꞨV)

    China is a shithole amongst shitholes.

    the article is paywalled

  2. Bad Samaritan

    Why not paste some of the article so we can at least know WTF it’s about.

  3. Mark A

    Bad Samaritan
    #2922835, posted on February 1, 2019 at 8:39 am

    Why not paste some of the article so we can at least know WTF it’s about.

    You are not missing much, this article is a bit of a hotch-potch, or more likely I don’t follow the reasoning for lack of education in economics.

  4. Mak Siccar

    12:00AM FEBRUARY 1, 2019
    As US and Chinese negotiators struggle to reach agreement ­before higher American tariffs on Chinese goods come into effect on March 2, it is increasingly clear that the Trump administration has two distinct, and potentially inconsistent, goals.

    The first, which Don­ald Trump is focused on, is to vastly boost Chinese purchases of US goods, fulfilling the President’s promise to reduce the trade imbalance.

    The second, which is the prime concern of American business and of the ­national security establishment, is to rein in China’s industrial policies.

    Those policies aim to raise China’s technological capabilities through an array of instruments that go from coercing foreign firms into transferring technology to their Chinese counterparts, to tolerating (if not facilitating) the theft of intellectual property.

    As one might expect, the Chinese authorities are far more willing to accede to the first of those demands than to the second.

    Wasting public money so as to buy off conflict is deeply ingrained in their way of operating. If they must squander some of their still enormous reserves of US dollars on American goods, that seems a paltry price to pay for avoiding a trade war.

    As for the goods themselves, China could re-export them at a deep discount, displacing more ­efficient producers.

    And if that won’t work, there is plenty of room for them to rot alongside the unused airports, empty housing projects and surplus man­ufacturing plants that litter China’s landscape.

    From an economic efficiency perspective, it is hard to say a kind word about forced sales of that type. But even putting their inefficiency aside, it is apparent they would make the US more, rather than less, dependent on China.

    In effect, the lower the degree to which the Chinese actually need the goods (or the more ­readily they can obtain them from other sources at lower cost), the more credibly they can threaten to stop the purchases, inflicting pain that will only grow as American firms take hiring, borrowing and investment decisions that rely on those purchases continuing.

    That possibility is hardly likely to prevent those purchases from figuring prominently in any agreement. But there is an obvious tension between them and the ­objective of containing China’s growing power.

    Some of the trade issues that objective raises are relatively straightforward.

    There are, in particular, areas in which China’s conduct seems plainly inconsistent with its international obligations, most notably in respect of intellectual property.

    The administration of the ­intellectual property laws in China remains shambolic and marred by cronyism and corruption; so too are the courts that hear intellectual property cases. Given slack enforcement, the ­unauthorised copying of patented or copyrighted material is widespread, as is the misappropriation of trademarks.

    As well as damaging China’s trading partners, there is mounting evidence that the ease with which intellectual property can be stolen undermines China’s own efforts at industrial upgrading. More specifically, it has helped ­divert China’s research and development capabilities from genuine innovation to thinly disguised ­imitation.

    As a result, while China’s stock of patents has grown in line with its rising number of scientists and engineers, fewer of those patents are technically significant than was the case for other fast-­growing countries at similar levels of industrial development.

    Remedying that would seem to be in China’s own interest, rather than being merely a concession to the US. But that is less clearly the case for China’s ambitious “Made in China 2025” plan, which is also in the Trump administration’s sights.

    As far as the Chinese are concerned, that plan merely follows similar efforts the East Asian ­“tigers” made during their rapid-growth phase. And their plan, they argue, is on a smaller scale and more market-oriented than its predecessors elsewhere.

    Those claims are not unreasonable. It is, for instance, ­likely that Japan’s NEC received far greater public assistance as it moved ­towards the technological frontier than Huawei has. And it is a fact that the French ­government intervened more ­directly and ­drastically to favour the emergence of Alcatel as a major force in global telecommunications than anything China’s 2025 plan envisages.

    Moreover, those interventions were mirrored, albeit much less successfully, in Britain and Italy, which also sought to transform their telecommunications equipment producers into export powerhouses.

    Last but not least, in the US ­itself defence funding played a ­crucial role in the development and rapid commercialisation of telecommunications technologies that include fibre optics, digital switching and data transmission.

    To that extent, compelling China to abandon its 2025 plan would prevent it adopting policies that other countries — rightly or wrongly — pursued as they sought to enhance their technological capabilities. As such, it would represent an unacceptable restriction on China’s sovereignty.

    But while those points have their merit, there are crucial differences between China’s situation and those of the countries that adopted similar policies in the past. In part, that is a question of sheer size. Whatever Japan’s ­industrial policies may have been 50 years ago, when Japan was a relatively insignificant player in international markets, they had much less ­impact on the world economy than China’s now have, with ­globalisation only ­accentuating the difference. The most salient difference, however, is political. Although France and Japan posed a commercial challenge to their trading partners, they were hardly a strategic threat.

    In contrast, China is an authoritarian, one-party state in which every business decision is potentially subject to the Communist Party’s direction.

    To make matters worse, instead of receding, as was widely expected when China joined the World Trade Organisation in 2001, the party’s control over the economy has increased dramatically. And there is every reason to fear that the Chinese leadership’s aim, in strengthening the country’s technological capabilities, is to bolster its capacity to project force domestically and overseas.

    All that creates an unavoidable contradiction between China’s regime, which makes economics an instrument of politics, and the world trading system, which is more sharply than in the past premised on their rules-based separation. Yes, China has mooted some concessions, such as rolling back the preferential treatment of govern­ment-owned businesses and easing restrictions on foreign subsidiaries, but they are limited, gradual and hard to enforce.

    Faced with those difficulties, the Trump administration may well concentrate on extracting promises of billions of dollars in American exports, securing badly-needed “announceables” the President can boast about.

    That would appease the ­immediate tensions, reducing the uncertainty weighing on the world economy, while leaving to another day the industry policy ­issues, which are as complex as they are combustible. The risk, however, is that as China’s technological capabilities grow, and its bellicose nationalism with them, hosing down today’s conflict may simply ensure “the fire next time”.

    HENRY ERGAS COLUMNIST

  5. Mak Siccar

    My attempt to copy and paste the article got gobbled up by the Spaminator. I’ll try again.

  6. Mak Siccar

    China might dance to trump’s tune – for a while

    HENRY ERGAS
    12:00AM FEBRUARY 1, 2019
    As US and Chinese negotiators struggle to reach agreement ­before higher American tariffs on Chinese goods come into effect on March 2, it is increasingly clear that the Trump administration has two distinct, and potentially inconsistent, goals.

    The first, which Don­ald Trump is focused on, is to vastly boost Chinese purchases of US goods, fulfilling the President’s promise to reduce the trade imbalance.

    The second, which is the prime concern of American business and of the ­national security establishment, is to rein in China’s industrial policies.

    Those policies aim to raise China’s technological capabilities through an array of instruments that go from coercing foreign firms into transferring technology to their Chinese counterparts, to tolerating (if not facilitating) the theft of intellectual property.

    As one might expect, the Chinese authorities are far more willing to accede to the first of those demands than to the second.

    Wasting public money so as to buy off conflict is deeply ingrained in their way of operating. If they must squander some of their still enormous reserves of US dollars on American goods, that seems a paltry price to pay for avoiding a trade war.

    As for the goods themselves, China could re-export them at a deep discount, displacing more ­efficient producers.

    And if that won’t work, there is plenty of room for them to rot alongside the unused airports, empty housing projects and surplus man­ufacturing plants that litter China’s landscape.

    From an economic efficiency perspective, it is hard to say a kind word about forced sales of that type. But even putting their inefficiency aside, it is apparent they would make the US more, rather than less, dependent on China.

    In effect, the lower the degree to which the Chinese actually need the goods (or the more ­readily they can obtain them from other sources at lower cost), the more credibly they can threaten to stop the purchases, inflicting pain that will only grow as American firms take hiring, borrowing and investment decisions that rely on those purchases continuing.

    That possibility is hardly likely to prevent those purchases from figuring prominently in any agreement. But there is an obvious tension between them and the ­objective of containing China’s growing power.

    Some of the trade issues that objective raises are relatively straightforward.

    There are, in particular, areas in which China’s conduct seems plainly inconsistent with its international obligations, most notably in respect of intellectual property.

    The administration of the ­intellectual property laws in China remains shambolic and marred by cronyism and corruption; so too are the courts that hear intellectual property cases. Given slack enforcement, the ­unauthorised copying of patented or copyrighted material is widespread, as is the misappropriation of trademarks.

    As well as damaging China’s trading partners, there is mounting evidence that the ease with which intellectual property can be stolen undermines China’s own efforts at industrial upgrading. More specifically, it has helped ­divert China’s research and development capabilities from genuine innovation to thinly disguised ­imitation.

    As a result, while China’s stock of patents has grown in line with its rising number of scientists and engineers, fewer of those patents are technically significant than was the case for other fast-­growing countries at similar levels of industrial development.

    Remedying that would seem to be in China’s own interest, rather than being merely a concession to the US. But that is less clearly the case for China’s ambitious “Made in China 2025” plan, which is also in the Trump administration’s sights.

    As far as the Chinese are concerned, that plan merely follows similar efforts the East Asian ­“tigers” made during their rapid-growth phase. And their plan, they argue, is on a smaller scale and more market-oriented than its predecessors elsewhere.

    Those claims are not unreasonable. It is, for instance, ­likely that Japan’s NEC received far greater public assistance as it moved ­towards the technological frontier than Huawei has. And it is a fact that the French ­government intervened more ­directly and ­drastically to favour the emergence of Alcatel as a major force in global telecommunications than anything China’s 2025 plan envisages.

    Moreover, those interventions were mirrored, albeit much less successfully, in Britain and Italy, which also sought to transform their telecommunications equipment producers into export powerhouses.

    Last but not least, in the US ­itself defence funding played a ­crucial role in the development and rapid commercialisation of telecommunications technologies that include fibre optics, digital switching and data transmission.

    To that extent, compelling China to abandon its 2025 plan would prevent it adopting policies that other countries — rightly or wrongly — pursued as they sought to enhance their technological capabilities. As such, it would represent an unacceptable restriction on China’s sovereignty.

    But while those points have their merit, there are crucial differences between China’s situation and those of the countries that adopted similar policies in the past. In part, that is a question of sheer size. Whatever Japan’s ­industrial policies may have been 50 years ago, when Japan was a relatively insignificant player in international markets, they had much less ­impact on the world economy than China’s now have, with ­globalisation only ­accentuating the difference. The most salient difference, however, is political. Although France and Japan posed a commercial challenge to their trading partners, they were hardly a strategic threat.

    In contrast, China is an authoritarian, one-party state in which every business decision is potentially subject to the Communist Party’s direction.

    To make matters worse, instead of receding, as was widely expected when China joined the World Trade Organisation in 2001, the party’s control over the economy has increased dramatically. And there is every reason to fear that the Chinese leadership’s aim, in strengthening the country’s technological capabilities, is to bolster its capacity to project force domestically and overseas.

    All that creates an unavoidable contradiction between China’s regime, which makes economics an instrument of politics, and the world trading system, which is more sharply than in the past premised on their rules-based separation. Yes, China has mooted some concessions, such as rolling back the preferential treatment of govern­ment-owned businesses and easing restrictions on foreign subsidiaries, but they are limited, gradual and hard to enforce.

    Faced with those difficulties, the Trump administration may well concentrate on extracting promises of billions of dollars in American exports, securing badly-needed “announceables” the President can boast about.

    That would appease the ­immediate tensions, reducing the uncertainty weighing on the world economy, while leaving to another day the industry policy ­issues, which are as complex as they are combustible. The risk, however, is that as China’s technological capabilities grow, and its bellicose nationalism with them, hosing down today’s conflict may simply ensure “the fire next time”.

  7. Chris M

    Yeah Trump is inconsistent compared to The Australian and it’s hacks which really are so consistent. ABC are consistent too. All of them, so smart comrades.

  8. struth

    Don’t bother posting it, just more dribble From Henry has-gas.
    A dribbling, cretinous wrongologist.
    Economists have tunnel vision, they can never see the big picture, classic academic minds.
    Useless.
    Steve Kates is a rare exception.
    But even there you can see in him, the constant fight he must put up to not be consumed by the brain farts of the academics he must associate with.

  9. Trump has already won this mini trade war with China. Most of what Trump want’s has been agreed to. It’s the timelines they are negotiating at mo. (as well as the intellectual propert stuff) Let me explain.

    China buys raw materials from all over the globe.
    These purchases are under contract.
    China is willing to buy much of these raw materials from the US in order to appease Trump’s desire to reduce the US China trade deficit, but can’t until the existing contracts run out e.g buying gas and coal from Australia, soy beans from the EU, copper from Brazil etc etc.
    In time, Trump is going to suck in about $150b to $200b worth of sales that countries like Aus, CAN and Brazil makes to China.
    Expect lengthy recessions and deep deficits in Australia in a few years (hopefully while Shorten is PM)

  10. struth

    In time, Trump is going to suck in about $150b to $200b worth of sales that countries like Aus, CAN and Brazil makes to China.

    When Trump got in, and as soon as he started to talk back to that female nobody of a reporter about having a problem with women, I was a supporter.
    I still very much am.

    When he started winning people here thought they were winning too.
    You might remember I made the statement that Trump winning won’t help back water socialist shit holes like Australia one bit, you’ll actually see a renewed vigour in the left’s attacks against democracy, freedom and capitalism due to their fear of him.
    We put all our eggs in with Red China.
    How fucking insane.

    Just call me, Nostrastruthmus.
    No actually, I’m doing better than him.

  11. Here is the latest on the trade deal being made between the US and China.
    China is buying 5 million tonnes of soybeans PER DAY from the US. Much of this used to come from the EU and South America and Russia.
    Link to the Oval Office presser and transcripts.

    https://theconservativetreehouse.com/2019/01/31/president-donald-trump-meets-with-representatives-of-china-during-trade-negotiations-video-and-transcript/

  12. struth
    #2922992, posted on February 1, 2019 at 12:25 pm

    Actually Struth, we could ride on the back of Trump’s success. The man is big on loyalty and is vicious against those who wrong him.
    It didn’t help Australia when Turnbull fucked around by taking sides with the Hildabeast and the same for The Boy Trudeau. Canada is paying a big price now.
    We will pay a big price until we get a PM who can get along with Trump. He rewards friends and loyalty, has always done so throughout his life.
    We need pollies who can understand that in order for Australia to benefit.

    p.s. By the way, if Downer and the Oz intel people helped spy on the Trump campaign for The Kenyan and Hildabeast, we are fucked.
    I predict an Aussie dollar at less than 50c US within 3 years.

  13. Dr Fred Lenin

    Trump prove thst if you are hard and uncompromising with socialist fascist do]ictatorships they come to the party look at China and NKorea . Reagan was lime that with the soviets and it destroyed them the socialist fascists know this . It is always said if Chamberlain had been firm with the German socialist fascists things might have turned out differently ,they shoukd have stomped on the Hitler left while the were in the early stages the minute he broke the Versailles Treaty before Germany got strong again .

  14. Makka

    I wouldn’t worry Henry. I’m sure Trump and his very competent trade negotiating team have it covered. China can fluff about all it wants but the bottom line is that the US holds the cards that matter and Trump knows how to play them.

  15. struth

    Actually Struth, we could ride on the back of Trump’s success.

    No argument from me.
    But we won’t, and you and I both know it.
    We’re closer to France and Venezuela than we are to a culture like that of the states.

  16. Dr Fred Lenin

    Struth speaking of France I hear the Army Chiefs have pulled Macron in to gear with a veiled threat to respond to what the EU fascists are up to. They could remove him a put Marine le Pen in his place as she ran a close second in the election . The gilet jaunes woukd support them and the overtaxed productive workers .

  17. Bad Samaritan

    Baa Humbug (12.31pm). Downer is now a double-dickhead. Not only siding with Turnbull and Shorten (recall the “barking mad” comment?) and Hillary against Trump, but also a fully paid-up Chinese agent-of-influence to boot.

    Anyone still unaware of how deeply infected the Aussie Deep State is, should look no further than the Huawei
    board. Why do the names Alexander Downer and John Brumby appear thereon?

  18. Ubique

    The decision by the WA Government to award a $205m contract for the digitisation of metropolitan rail communications to Huawei is not in the league of the NT Government leasing the Port of Darwin to China; but it’s up there.

  19. Bad Samaritan
    #2923140, posted on February 1, 2019 at 4:39 pm

    Yeah mate. Money talks and integrity walks.
    That’s one of the reasons I like Trump. He can’t be bought.

    struth
    #2923070, posted on February 1, 2019 at 2:28 pm

    But we won’t, and you and I both know it.

    Unfortunately.

  20. James Clarke

    “Chinese engineer charged in theft of Apple self-driving car secrets” Just what they need, an overpriced car that looks good on the outside, but has a new fault with every Iteration!

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