Trump has some aces up his sleeve for China on trade

When President Trump announced his tariffs on steel and aluminum last week, a cry of bloody murder went up.  The globalists and free traders trotted out exaggeration after exaggeration as to their adverse effect on the U.S. economy.  Many libertarians joined the choir for the sake of the purity of their ideology.  Those of a more moderate temperament said these tariffs are a meaningless gesture that would do little to address China's predatory trade practices. 

But there was one dog that didn't bark.  It was the stock market.  Take it for what you will: the Dow closed up 430 points on Friday, March 9.

Trump's tariffs on steel and aluminum are not the end-all on the matter of trade.  Actually, they are more a gambit.  The president said he intends to exempt Mexico and Canada, our largest trading partners, from the tariffs – for now.  This is tenderizing those countries for the ongoing North America Free Trade Agreement (NAFTA) renegotiation.  That the U.S. is seen to be serious and willing to act unilaterally on trade can't help but make Canada and Mexico, both of which enjoy trade surpluses with the U.S., shall we say, more flexible.  Here Trump is like a general seizing the high ground before a battle. 

China sees this.  More important than the shotgun approach of steel and aluminum, the Trump administration is planning to target China, specifically using Section 301 of the U.S. Trade Act of 1974 as his rifle.

This law authorizes the president to take all appropriate action, including retaliation, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce.  Section 301 cases can be self-initiated by the U.S. trade representative or as the result of a petition filed by a firm or industry group.

Under Section 301, there is no requirement for the president to consult Congress.  However, he must allow the offenders (China) to seek a remedy.  And Trump is in the process of doing just that.  He recently tweeted that America has told China to reduce its trade surplus with the U.S. by $1 billion.  He later upped this to $100 billion or 28 percent of China's surplus.  That's the remedy. 

Is Trump's demand outrageous?  Hardly.  The White House Council of Economic Advisers puts the cost of just China's espionage, forced technology transfers, and outright theft of U.S. intellectual property at between $227 billion and $599 billion a year.  Over time, that adds up to trillions of dollars.  And note that these theft numbers are not included in the massive trade surpluses that China racks up each year with the U.S.  It is anticipated that the president will use Section 301 to address these inequities.  The sweeping penalties against China could include import duties and other trade restrictions.

And the U.S. has another ace up its sleeve in dealing with China.  It may be going out on a limb to say it, but consider this.  The U.S. is not the only one who has suffered from China's predatory trade practices and technology theft.  Europe, too, has.  Although many see Trump's personality as one that is not particularly partial to collective action, don't be surprised if he reaches out and forms a coalition with European countries to tame the Red Dragon.  Trump's forte, both in campaigning and in governing, is going against conventional wisdom.

As for European countries, they may be amenable to joining Trump's move for an additional reason.  It seems they received a rude awakening when China's leader, Xi Jinping, made himself the new Mao Zedong, leader for life in China.  Apparently, Europe was under the delusion that China would evolve into a quasi-liberal state, what with the wealth it was harvesting from trade.  That turned out not to be so.

Looking back in retrospect, it is becoming clear that Trump really believed it when he said a trade war is both good and easy to win.

All this is taking the globalists and foreign governments back some.  Simply put, they are not used to seeing America actually assert itself in such a forceful way.  It's a new paradigm that they will have to get used to...and they will in time.

One last point to address.  Through years of complacency, China may well believe that the U.S. is now a paper tiger – old, soft, and toothless.  And it seems that way to many of us here, too.  After all, Section 301 has been on the books for more than 40 years, and during that time, it has sat little used while blatant theft of our technology went unabated.  But how deep is that malaise?  Japan thought the same way back in '41, which prompted its attack on Pearl Harbor.  As many of you may recall, Japanese admiral Isoroku Yamamoto, who planned the attack, reportedly wrote in his diary immediately afterward: "I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve."

There's a more contemporary way of making the same point.  This one by analogy.  It's given by actor Christopher Walken in his classic Lion Speech

The takeaway is that once America is aroused, the jackals and hyenas will no longer be eating the food in our domain.

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