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Trade War

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Trade War

Newsletter 30 - July 27, 2020

Dexter Roberts
Jul 28, 2020
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Welcome to Newsletter 30 of Trade War and the continuing downward spiral in U.S.-China relations. The new low in the relationship was achieved this week by the U.S. decision to close the Chinese consulate in Houston, Texas, alleging widespread spying, and the Chinese response shuttering the U.S. consulate in Chengdu, Sichuan, a key post for monitoring Tibet and Xinjiang.

Meanwhile, U.S. secretary of state Mike Pompeo delivered a stinging speech attacking the Chinese Communist Party, widely seen as a call to end the already tattered policy of engagement with China.

Tit for tat consulate closures

While the U.S. has accused China of massive spying, saying that made the shuttering of the Houston consulate necessary, “in the Chinese telling, Beijing is under assault, as the Trump administration goes after it with increasing intensity on trade, technology and human rights,” reported the New York Times.

“The United States has recently stirred up troubles in relations with China to the point of hysteria,” said Xinhua News Agency in an editorial. The Chinese response: closing down the Chengdu consulate, one of six diplomatic outposts (including the embassy in Beijing), that the U.S. has had in China.

Twitter avatar for @stevenleemyers
Steven Lee Myers @stevenleemyers
Breaking: China shutters the American Consulate in Chengdu, capital of Sichuan province, retaliating for the closure of Houston, as promised.
nytimes.comChina Orders U.S. to Shut Chengdu Consulate, Retaliating for HoustonThe tit-for-tat consulate closures marked yet another round of rising tensions between Washington and Beijing.
4:17 AM ∙ Jul 24, 2020
17Likes6Retweets

Be sure to listen to the music that accompanies this odd video of the Chinese side taking back control of the vacated U.S. Consulate in Chengdu.

Twitter avatar for @qingqingparis
Qingqing_Chen @qingqingparis
Video: Chinese side officially takes over #US Consulate General in #Chengdu this morning.
Image
3:56 AM ∙ Jul 27, 2020
19Likes12Retweets

“Distrust and verify”

In a speech widely seen as marking the end of the policy of engagement that has defined the U.S. approach to China since diplomatic relations were established in 1979, secretary of state Mike Pompeo called for a new far more confrontational approach to the relationship with the Chinese leadership.

“President Reagan said that he dealt with the Soviet Union on the basis of “trust but verify.” When it comes to the CCP, I say we must distrust and verify,” Pompeo said speaking at the Richard Nixon Presidential Library and Museum in Yorba Linda, California. “We have to draw common lines in the sand that cannot be washed away by the CCP’s bargains or their blandishments.”

Twitter avatar for @SecPompeo
Secretary Pompeo @SecPompeo
The only way to truly change Communist China is to act on the basis of what its leaders do, not what they say. President Reagan dealt with the Soviets on the basis of “trust but verify.” When it comes to the CCP, I say, “Distrust and verify.”
Image
7:11 PM ∙ Jul 24, 2020
21,438Likes7,803Retweets

And the Pompeo speech is one of three made recently by top U.S. officials of course, which together make up a “remarkable re-framing of the U.S.-China relationship,” tweets Tom Orlik, chief economist at Bloomberg Economics.

Twitter avatar for @TomOrlik
Tom Orlik @TomOrlik
Taken together, the Pompeo, Barr and O'Brien speeches are a remarkable re-framing of U.S.-China relationship state.gov/communist-chin… whitehouse.gov/briefings-stat…
justice.govAttorney General William P. Barr Delivers Remarks on China Policy at the Gerald R. Ford Presidential MuseumThank you, Andrew for that very kind introduction and for the excellent work that you and your team have done in protecting the people of the Western District of Michigan. I would like to thank the
12:57 PM ∙ Jul 24, 2020
20Likes18Retweets

Pushback from the foreign policy establishment

The Pompeo speech drew establishment pushback however, and notably so from Richard N. Haas, president of the Council on Foreign Relations, writing in the Washington Post. “An effective U.S. policy toward China would work with, not against, our allies and partners.”

“Instead, under this administration, we treat the European Union as an economic foe, bash South Korea and Japan over how much they pay to offset the costs of our stationing soldiers on their territory and regularly raise doubts as to our reliability, be it by unilaterally canceling military exercises on the Korean Peninsula or threatening to withdraw some of our troops from South Korea.”

“It is not realistic to expect allies to stand up to a powerful neighbor if they cannot count on us,” Haas continued.

Twitter avatar for @RichardHaass
Richard N. Haass @RichardHaass
A serious US policy would aim to shape China's actions at home and abroad & involve US joining TPP & leading WTO reform, closer security ties w allies along w joint effort on 5G, & a more competitive US via greater research funding, immigration reform, etc
wapo.stOpinion | What Mike Pompeo doesn’t understand about China, Richard Nixon and U.S. foreign policyJust about everything
6:05 PM ∙ Jul 26, 2020
218Likes72Retweets

The knife in the oyster and open it right up

“This is the evangelical side of America,” journalist and author Orville Schell said in an interview with the Los Angeles Times, describing the attitude popular in Washington that engagement could change China. “We thought the persuasiveness of the American proposition would ineluctably change a country like China. … We had the internet, the market, you name it. We thought we’d get the knife in the oyster and open it right up.”

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
“We had this idea: ‘There’s an inescapable, unavoidable course of history, and China will get on its right side. It will have to change,’ almost like Marxist determinism.” - Orville Schell
latimes.comNews Analysis: How bad could U.S.-China relations get?Last week marked the end of U.S.-China engagement. The two powers may now be sliding toward a severance of relations and even outright military conflict.
5:21 AM ∙ Jul 27, 2020

My entrepreneurial spirit has been dampened

Meanwhile, China’s abrasive new style of diplomacy is hurting the prospects of China’s ambitious tech companies, reported Reuters. “China’s top tech players are having contracts cancelled, products banned and investments blocked, with more restrictions on the horizon.”

“What we are experiencing now is unprecedented … My entrepreneurial spirit has been dampened due to all this, let alone global ambitions,” Reuters quoted one Chinese tech entrepreneur saying.

Twitter avatar for @JChengWSJ
Jonathan Cheng @JChengWSJ
China's wolf warrior diplomacy is hurting the global ambitions of its ambitious tech firms. “What we are experiencing now is unprecedented…My entrepreneurial spirit has been dampened due to all this, let alone global ambitions.”
reut.rsGlobal prospects dim for China’s tech champions as great powers clashHuawei Technologies’ founder Ren Zhengfei’s global ambitions are marked in bricks and mortar at a new company campus in southern China, where the buildings are replicas from European cities.
4:31 AM ∙ Jul 27, 2020
29Likes24Retweets

Larder, arsenal, and bank

A former chief economic advisor to the Indian government argues that China has lost what could have been a good opportunity to strengthen its global standing, during the covid-19 pandemic.

“By choosing unprovoked aggression over enlightened generosity, China has squandered that historic opportunity and possibly also revealed its true character. Soft power, China appears to believe, is for wimpy democracies. Scorpions sting. The world must take steps to respond,” wrote Arvind Subraman for Project Syndicate.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
Historian Tuchman described earlier shift as a strong America becoming an "enfeebled UK’s 'larder, arsenal, and bank.'" With COVID-19, China could have become "the development bank, central bank, and medical supplier to the world" writes @arvindsubraman
prosyn.orgChina Has Blown Its Historic Opportunity | by Arvind Subramanian - Project SyndicateIn the wake of the COVID-19 pandemic, China could have become the development bank, central bank, and medical supplier to the world. By choosing unprovoked aggression over enlightened generosity, President Xi Jinping’s regime has squandered that historic opportunity and possibly also revealed its tr…
6:28 PM ∙ Jul 27, 2020

Notable/In Depth

Here’s an interesting piece looking at the earlier rise and fall of the once popular policy of import substitution—perhaps worth reading in this time of policies that aim to “reshore” manufacturing to the U.S., Taiwan and Japan.

Twitter avatar for @PIIE
Peterson Institute @PIIE
Development economics has had its share of ups and downs over the decades. @D_A_Irwin explores the rise and fall of import substitution as a development idea and seeks to explain why it was originally considered desirable and why it fell out of favor.
piie.comThe rise and fall of import substitutionIn the 1950s, many economists believed that import substitution—policies to restrict imports of manufactured goods—was the best trade strategy to promote industrialization and economic growth in developing countries.
9:27 PM ∙ Jul 25, 2020
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Discussing the internal challenges, including the hukou, that hold China’s economy back, in this conversation I had with Mumbai’s Gateway House: Indian Council on Global Relations.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
"One of the great ironies of the communist revolution in China, which is not always recognized and that is that going all the way back to the Mao era, there was a system put in place that really divided China into two major classes" via @GatewayHouseIND
sumo.lyChina’s internal dilemmas - Gateway HouseChina is the center of the universe and it’s enjoying the attention - as also misusing it. Its rise changed geopolitics and trade starting two decades ago. And now in 2020, its rise is changing geopolitics and trade again. Dexter Roberts is the author of a new book The Myth of Chinese Capitalism, Th…
12:56 AM ∙ Jul 28, 2020
6Likes3Retweets

How China has been able to move up the global value chain in the middle of a trade war is explained by HSBC’s Frederic Neumann in this short video.

Upcoming talk

China’s governmental policies that are hindering a better life for its citizens and holding back its economic transition will be the subject of my talk this Thursday evening at the Northwest China Council in Portland, OR. Details in the link.

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