The Taxman Cometh? The Coming Trade War with China or a Selling of American Interests to the Highest Bidder (Part One of Three)

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The Taxman Cometh? The Coming Trade War with China or a Selling of American Interests to the Highest Bidder (Part One of Three)

 Robert B. Scaife

November 26, 2016

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Ruminating on President-elect Donald Trump’s policy outline for his administration’s first 100 days in office, what struck me was his promise of a definitive withdrawal from the Trans-Pacific Partnership (TPP) as one of his first acts. The TPP has been a source of contention for the past couple of years, although it has been in development for over 10 years. Much of the criticism was initially due to the treaty being withheld from public scrutiny by the constituent parties (United States, Australian, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, Canada, Mexico, and Japan). However, after the release of several chapters and other assorted documents linked to the TPP by WikiLeaks, the cry against the TPP grew louder, in part because of questions these documents raised about privacy, intellectual property, and environmental concerns.

First, one must understand the genesis of the TPP. According to University of Arkansas Professor Ka Zeng, “Noticeably, both Washington and Beijing seem to be more frequently using the WTO’s dispute management mechanism (DSM) to target issues of critical concern to their respective domestic constituencies.  While the U.S.’ WTO trade disputes against China tend to target Chinese industrial policy, and challenge the dominance of state-owned enterprises (SOEs), cases involving antidumping duties (ADs) and countervailing duties (CVDs) have taken up a disproportionate share of China’s WTO disputes against the United States.

“Washington’s focus on Chinese industrial policy and the Chinese government’s continued support for domestic enterprises needs to be viewed against Beijing’s continued heavy involvement in the economy. Indeed, while economic reforms and WTO entry have strengthened the influence of free markets in China, the Chinese government has increased its reliance on industrial policy during the past decade.”

Both the PRC and the US have been using the WTO’s DSM as a methodology for settling matters of economic concern, with the PRC as the predominate target of anti-dumping (AD), countervailing duties (CVD), and safeguard measures. The PRC has, in turn, attempted to use the DSM as a way to address what it perceives as unfair use of the DSM instrument against it and in particular to challenge its designation as a non-market economy (NME) which the PRC sees as the impetus for many of these complaints (mainly, due to many challenges against the PRC being upheld).

Out of this environment the TPP began its nascent development as a little-known agreement between the New Zealand, Chile, Singapore, and Brunei Darussalam (known as the Pacific Four or P-4). US involvement in the P-4 agreement discussions, and what would ultimately become the TPP, began in March 2008 as part of a larger ‘pivot’ toward US interest in the Asian-Pacific theatre. Through negotiations and the addition of an additional seven states to the negotiations, the scope of the original P-4 agreement changed to be more comprehensive and decisive as a trade agreement. As stated before, much is unknown as to what is exactly in the TPP, but what is known is that the TPP specifically targets SOEs as an unfair trade practice. Which would seem to put the onus of any deleterious effects of the TPP on developing states, like Vietnam that has over 1000 SOEs.

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The TPP, therefore, can be seen as a direct rejection of the PRC’s economic practices by the signatories and a hedge against both the perceived manipulation of the WTO and growing economic dominance by the PRC in the region. Knowing this, why would the President-elect state that he would be killing the deal before he is even sworn in? Additionally, on this matter President-elect Trump and Sen. Bernie Sanders make strange bedfellows insofar that they both reject the TPP outright.

To chalk the rejection of TPP up to a simple lack of marketing on the part of the Obama Administration, as well as getting caught playing three-card Monte with the American public with the details of the agreement. One can’t deny that has influenced conversation, especially with the Press; however, what does run through both Sen. Sanders’ and Trump’s estimation of the situation is a rejection of neo-liberal economics.

Looking at the broader context of global politics, one can start to see definitive lines of thought between Brexit, the assenting of Trump, Le Pen, Farage, et al, as part and parcel of this rejection. This similarity between the Left and Right on this issue has been arrived at from purely differing ideological ideals; the Left fretting about growing disparity and the Right fretting about a perceived loss of sovereignty.

President-elect Trump’s response to pulling out of the TPP is to label the PRC as a currency manipulator so that it can enact tariffs on PRC goods. The next step would be to place a 45% tariff on all goods sent to the US from the PRC, essentially slowing the importation of Chinese goods to a trickle. This threat is being taken serious enough by Fortune 500 companies that there have been reports of some companies, e.g. Apple, Inc., moving their production back to the US. Additionally, the Trump administration has states that they will “pullback” from East Asia and pursue a more transactional defense strategy in the Pacific and globally (i.e. a state’s defense by the US is predicated on quid pro quo). However, if this were to pass, one will soon see the accuracy in Mark McKinnon’s quip, “As history has repeatedly proven, one trade tariff begets another, then another – until you’ve got a full-blown trade war. No one ever wins, and consumers always get screwed.”

This begs the question: Is Trump an isolationist? Or is something else afoot? According to a report by the Wall Street Journal, “On Monday, Mr. Trump spoke by phone with President Xi Jinping. His office said the two men had established a “clear sense of mutual respect.” Chinese state media cited Mr. Xi as saying that cooperation is the “sole correct choice.” Chinese leaders hope Mr. Trump will act like a businessman—pragmatic, transactional, open to what they call “win-win” solutions (U.S. executives in China quip that this generally means “China wins twice.”)”

Jubilance by the PRC on Trump’s victory should be cause for concern to the American public. Yet, once could see how the PRC could see Trump’s anti-liberal economic agenda as an opportunity for the RC. Nonetheless, working within the realm of what Sec. Rumsfeld called the ‘known-unknowns and unknown-unknowns’ can be cause for a bit of consternation; however, as we approach January 20, Trump’s policy will come more focused. One can only hope that like many of his other campaign promises, sanity will set in and the TPP will be reconsidered.

In the next entry, I will discuss the TPP and how it looks when compared to the PRCs RCEP and what that means for US strategic interests.

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