President Donald Trump returned home last week from a 12-day, five country trip to the APEC Summit in Vietnam and the ASEAN Summit in the Philippines that also included travel to Japan and South Korea, and potentially significant informal discussions with President Vladimir Putin at the APEC Summit. However, the visit to China not surprisingly received the greatest amount of attention. The meetings between Trump and China's president Xi Jinping , conducted amid great pomp and circumstance, were widely—but incorrectly--- believed to signify a “momentous shift in the region.” Expressing the conventional wisdom on those meetings, Newsweek concluded that “Trump's isolationism will allow China to dominate southeast Asia.”
To be sure, the contrast between the domestic standing of the two leaders could hardly have been sharper. Xi emerged from the 19th CCP Party conference in October having consolidated his position as the most powerful Chinese president since Mao Zedong. At least 20 universities have established institutes for “Xi Jinping thought on Chinese Socialism for a new era.” In his 205-minute speech he proclaimed that China had entered a “new era” and described China as a “great power” or “strong power” 26 times.
Trump returned home to a decidedly less hospitable environment. Even as they continue to search for hard evidence of “collusion” between the Trump campaign and Russia, investigators are turning their attention to Trump’s business empire and closing in on his associates. Rebellious senators from his own party have voted against attempts to repeal Obama’s health care policy, while the parallel attempt to pass a budget that includes massive tax cuts for corporations and wealthy individuals also faces opposition in the Senate. Republican Senate Foreign Relations Committee chairman Bob Corker has described the White House as an “adult day care center.”
During his presidential campaign, Trump proclaimed that China was “killing the United States on trade” and that “We cannot continue to allow China to rape our country.” Vowing to declare China a currency manipulator on his first day in office, he threatened to impose 45% tariffs on China and to restrict U.S. imports of steel. Yet, in Beijing he was conciliatory, stating that “I don’t blame China. After all, who can blame a country for being able to take advantage of another country for the benefit of its citizens. I give China great credit.” He refrained from noting that the 2017 U.S. trade deficit with China is projected to exceed by a substantial amount the $347 billion deficit of 2016. He lavished praise on Xi Jinping and did not apparently press him hard on North Korean nuclear programs.
Indeed, notwithstanding his campaign rhetoric, Trump's conciliatory policies with respect to China thus far contrast with the mercantilist and unilateral policies of Richard Nixon, who unilaterally abrogated the U.S. commitment to the dollar-gold standard, Ronald Reagan, who pressed Japan to carry out “voluntary export” agreements and Bill Clinton, who deployed the 1988 Omnibus Trade Act against both Japan and China.
An “America First” trade policy does not accord with the interests of corporate America, nor with the foreign policy establishment charged with securing these interests. China's rise unfolded within the framework of American power and interest, and not in opposition to it. Trump was accompanied to Asia not only by three aircraft carrier strike groups, but also by the CEOs of 29 U.S. multinationals including Boeing, General Electric, Honeywell, Qualcomm, and two liquefied natural gas companies, Cheniere Energy and Texas LNG. The U.S. firms are reported—no doubt with some exaggeration-- to have struck deals worth $250 billion in Beijing, a “miracle” according to China’s Commerce Minister Zhong Shan and evidence of a “strong, vibrant bilateral relationship” according to William Zarit, Chairman of the American Chamber of Commerce in China. Notably, Trump’s visit also saw the conclusion of an accord between CIC, China’s top sovereign wealth fund, and Goldman Sachs. China also agreed to open its financial institutions to 51% foreign ownership, a longstanding objective of Washington and Wall Street.
In the era of globalization in which large multinational corporations control vast production chains national accounts data concerning GDP and trade balances provide a highly misleading picture of international economic relations. As Sean Starrs has shown, “it becomes more important to investigate who ultimately owns and controls that production rather than discerning its geographic concentration.” For example, in 2013 China accounted for 38% of global exports of telecommunications equipment, compared to 7.4% for the United States. Yet, U.S. firms received 59% of the profit while the Chinese share was 6%. Of the top 10 exporting firms from China in 2015 only two were Chinese (Huawei and Sinopec) while 6 were from Taiwan and 2 from South Korea. Not a single Chinese textile firm is large enough to make the Forbes Global 2000, despite the fact that its exports constitute 29% of the world’s total. U.S. firms account for 46% of the profit share even as U.S. textile exports to the world are only 1.3%. Chinese automobile firms control less than 30% of their own market, notwithstanding years of subsidies and protective tariffs. Unlike the South Koreans and Japanese, they have been unable thus far to establish viable international brands.
The U.S. trade deficit with China is essentially a function of U.S. domestic policy. It has resulted from the shortage of national savings relative to excessive government spending and household consumption and it has been crucial to the profit strategies of corporate America. The fact that it is largely with China is a reflection of China’s role as the final assembly point in regional production chains in which U.S. , South Korean, Japanese, and Taiwanese firms predominate.
None of this is to suggest that U.S.-China relations will not display elements of both unity and rivalry in the coming years. To be sure, conflicts over steel, intellectual property, and access to China’s strategically important financial sector will intensify. However, even if Trump does carry through on his desire to make trade policy on a bilateral basis, this will certainly not bring about an end to the longstanding policy of the “open door” in Asia or even necessarily represent a fundamental shift in U.S. trade policy. Even if the remaining TPP countries close a deal neither they nor China would seek to decouple from the U.S. economy and its role as “consumer of last resort.”
Nor is it to suggest that China’s rise can be indefinitely contained, as was the case with Japan in the 1980s. Projects such as the “belt and road” and the Asian Infrastructure Investment Bank underwrite China’s rise but are unlikely to resolve the problem of massive overcapacity. Nor will these projects do much to spearhead the development of the renminbi (RMB) as a challenger to the dollar. At the present time the RMB accounts for 1.8% of global payments, ranking sixth behind the dollar, euro, pound, yen, and Canadian dollar. Just 16% of China’s trade is settled in RMB.
To be sure, American power is in important respects declining, in large part as a result of its own policies. U.S.-led globalization has benefited corporate America, but has contributed to the devastation of large swathes of urban and rural America, with resultant deepening social and cultural conflicts and political dysfunction.
Yet, predictions of isolationism or a “Thucydides Trap” are unwarranted. In Tokyo Trump and Prime Minister Abe strongly reaffirmed the U.S.-Japan alliance. In South Korea, Japan, and the Philippines Trump repeatedly invoked the “Indo-Pacific”—a term of geopolitical containment -- to refer to the massive land and sea area stretching from the U.S. pacific coast to Australia, Africa, and India. In Manilla the members of the “quadrilateral,” the USA, Australia, Japan, and India, called for a “free and open Indo-Pacific.” China has acquiesced to South Korea’s deployment of the THAAD anti- ballistic missile system and it appears likely that Japan will soon also acquire a comparable system from the United States. The United States is not isolationist and it is not retreating from Asia.