Welcome to Zooming In’s China Angle, I am Simone Gao. Recently the Trump administration has expressed satisfaction with how China has been purchasing US agricultural products. However, the president called off the scheduled review talk by the two parties on the trade deal last week saying I don’t want to talk to China right now. Does the president still want a trade deal with China? Is the trade deal a good remedy for the unbalanced trade relations with China or is it going to facilitate a further integration with China that will eventually harm the American people? Let’s start today’s inquiry by hearing these words from President Trump’s national economic advisor Larry Kudlow.
In another fox news interview, Kudlow said China has been buying more agricultural products than we have even seen before. In 2017, the peak year for China’s purchase, the American farm products they bought occupies 20% of its entire agricultural imports. This year, that number jumps to 40-45%.
However, Even if China can buy enough soybeans, corn or pork to meet its promises on agriculture, it’s unlikely it can buy enough oil and gas to meet those on energy. The airplane orders will also drop due to diminished travel.
Nevertheless, the president and ambassador Lighthizer were happy about the progress so far, that’s why the president tweeted that the trade deal is intact.But, just last Saturday, the president called off the scheduled trade deal review talk by the two parties. He simply said: I don’t want to talk to China right now.
What made the president not want to talk to China right now? We don’t really know for sure.
What we do know is that on one hand, China ramped up buying US farm products, on the other hand, they keep stealing U.S. intellectual properties. And the newest development is they put in serious efforts to compromise Trump’s 2020 presidential bid.
Since June, fake social media accounts from a pro-Chinese Communist Party spam network called “Spamouflage Dragon” have posted a wealth of English-language videos that attacked the Trump administration and its foreign policy.
Starting mid-July, English-language videos popped up on YouTube, Facebook, and Twitter, bashing the Trump administration for its policy on China, its handling of the pandemic, the racial inequality, and its threat to ban TikTok.
Headlined in Chinese but with English subtitles, All of these videos were poorly made, marked with language errors, awkward automated voice-overs, and posted by fake accounts with AI-generated profile pictures.
It is no secret that the Chinese Communist Party prefers Joe Biden over Donald Trump for 2020. What they are doing now is likely a common strategy best described in a Chinese idiom as pretending to advance along one path while secretly going along another. That is: they want to use the trade deal to pacify president Trump just enough that he won’t proceed with real devastating measures against the Communist regime. Meanwhile they do their best to damage the chances that Trump will be reelected. They wait for Biden to become the president to redo or scratch the trade deal.
At this point, I think it is critically important for the president to rethink the whole U.S.-China trade deal in order to make a final decision on whether the U.S. should de-couple from Communist China. There are two things that have to be considered in this evaluation process. First, whether China will honor the entire trade deal, especially whether they will be able to make the structural changes that America demands. Second, if they can’t make those structural changes, will a more integrated U.S. and Chinese economy that might result from the phase one trade deal hurt America.
Let’s start with the first one. Can China make the essential structural changes to its economy. I have talked about this in my very first China Angle. I believe the Chinese Communist Party can not and will not make these changes because those practices are fundamental to whether the Chinese Communist Party can stay in power.
Why? Think about it in this way. A real market economy requires certain qualities from its corresponding political system. The most important ones are individual rights, private property rights, a strong rule of law, and a limited government. These qualities fundamentally contradict how the communist party rules. In a Communist society, there is no such concept of individual rights and private property. Everything and everyone either belongs to the Party or is controlled by the Party or both. There is no independent rule of law. The Party is above the law.
You have the state-owned enterprises in China, but even the private companies are tightly controlled by the Party. They need to have good relations with party elites in order to obtain good contracts and seek protection.
Have the Chinese people tried to change their political system? Yes, they have. The sincerest and most daring effort for political reform from the Chinese people and some of the open-minded Communist leaders resulted in a bloody crackdown. Yes, I am talking about the 1989 Tiananmen pro-democracy movement. Deng Xiaoping in the end chose the Party rule over people’s yearning for democracy. Students and Chinese citizens were massacred.
After Tiananmen, Chinese communist leaders successfully channeled the country’s energy into pursuing one goal: money. Political reform is past tense.
Now the Trump administration is demanding structural changes to US-China trade relations. What does it really mean to the Chinese Communist Party? It means they have to change the way they run the Chinese economy, change the way they run the country and essentially change how the Communist Party stays in power.
Let’s take state subsidies, for example. China has been subsidizing its state-owned and state directed industries for years. The cost of Huawei’s 5G deployment is 40 percent lower than the next European bidder because of such subsidies. It is one of the key reasons why Chinese companies outperform their competitors worldwide.
Huawei’s success is the result of a communist party commanded industrial policy. It is the manifestation of the paramount power of the Party. It is how the communist party envisions, under its leadership, the country will achieve Made in China 2025 and eventually replace America as the world’s economic and technological leader. It is how the Party rules and how China works.
How can they easily give that up? In fact, under Xi Jinping, the Party is tightening control of China’s economy and the Chinese people. The Party is reversing privatization by installing more Party apparatus in private sectors, and by developing AI and surveillance technology, the Party’s grip on the Chinese people is tighter than ever.
If the Chinese Communist Party fundamentally won’t fulfill the entire trade deal, why are they purchasing more agricultural products from the U.S.? like I said before, I am afraid what they are really trying to do is to use the trade deal to pacify President Trump just enough that he won’t take further steps to cut off the CCP’s lifeline.
The president has already put sanctions on Huawei that made it unable to continue its production of high-end smartphones. Sanctions on top Chinese officials over Hong Kong and Xinjiang sent a big shock wave to the political circle. Kicking Chinese companies out of the American financial market cuts their cash supplies. The next step is to put sanctions on financial institutions who have business dealings with the Chinese and Hong Kong officials who are already sanctioned for human rights violations. What sanctions will those be? It is likely cutting these banks out of the U.S. dollar denominated system, also called the SWIFT system. If that happens, the banks would no longer be able to perform U.S. dollar based transactions which will be a death sentence to these banks. Theoretically, America can put such secondary sanctions on all Chinese banks and financial institutions that have been implicated in human rights abuses. If these sanctions took place, the Chinese economy would take a fatal blow.
Beijing definitely does not want the President to take steps like that. In fact, rumors just came out of the Beidaihe resorts where the current and previous Chinese Communist Leaders meet to discuss and decide on important state affairs. The rumor had it that the leadership has decided to be tough on 3 areas and soft on 3 other areas. They need to be tough on the Chinese people, on propaganda and on Hong Kong, but be soft on the United States, on the west and on the actions the party takes.
If the rumor is true, that will explain why the CCP increased purchasing of the American agricultural products – they did so to get the president’s hopes up. The hope that China is willing to fulfill the trade deal and what the president has been fighting for is within reach.
But that hope is dangerous.
We already talked about why the Chinese Communist Party won’t make those structural changes.
The real danger comes when on one hand, the CCP does not intend to honor the entire deal, but on the other hand, it gets the American economy further intertwined with the Chinese economy. For example, one of the main items in the phase one trade deal is to get China to open up its financial market. While it means wall street will be able to make more money from China, it also means that the American capital will pour into China to sustain the livelihood of the Chinese economy and the Chinese Communist Party since the main industrial sectors in China are controlled by the several families of the CCP leadership. When the full merge happens, the Chinese economy will be so tied to the U.S. economy that the failure of the Chinese economy will jeopardize the financial security of the average Americans. We all know that the U.S. federal pension funds, teachers retirement funds, and university endowments are all funding Chinese companies, and many of those companies pose national security concerns, are human rights abusers and conduct fraudulent practices. The scale of this investment is increasing rapidly and quickly approaching one trillion dollars and beyond. By then the Chinese Communist Party’s lobbying power in the American government will be so strong that anything against the CCP will not stand a chance.
Another worrying factor is that the Chinese Communist Party is quickly catching up on military capabilities. According to Michael Pillsbury, Senior advisor in the Department of Defence and president Trump’s chief China advisor, China is surpassing America’s weapon systems one after another. Pillsbury said if the U.S. engages in a war with China on the South China sea, the U.S. will likely win a short battle if it lasts less than two days. If it lasts more than 2 days, China will probably win because of its logistics advantages. Former intelligence head of the pacific fleet James Fanell also told me that there is uncertainty about whether the U.S. will be able to protect Taiwan if China invades Taiwan.
So if the U.S. is intertwined with China economically, and their military power surpasses ours, the U.S. will have no means to contain China, let alone protect the world.
This is a possible scenario. It has not happened yet, but we are quickly approaching that threshold. America has a small window right now to really fight back and get on top again. But China is using the trade deal to numb us. To make us have a false hope. A dangerous false hope. We need to be aware of that. This has been the China Angle. I am Simone Gao, thanks for watching and see you next time.
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