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Trade Is War, By Other Means

12:00 AM, Feb 18, 2012 • By IRWIN M. STELZER
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Xi Jinping, the heir apparent to the leadership of the Chinese Communist regime, came to America to meet the president, dine with the vice president, visit a farm in Iowa—following in the 1959 footsteps of Nikita Khrushchev—and attend a basketball game in Los Angeles. The Iowa visit was designed to remind Americans that Xi, who visited Iowa 27 years ago, has a long-standing attachment to America, reinforced by the fact that his daughter is attending Harvard, and that Iowa’s farmers rely heavily on income from exporting their agricultural products.

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In Washington the talk was about trade, giving the campaigning president and vice president an opportunity to demonstrate their undying loyalty to American workers by loudly reminding China’s vice president that trade can “only be mutually beneficial if the game is fair.” But for President Obama, who only recently had recommended that serious students of international affairs read Robert Kagan’s latest book, The World America Made, trade was the least of the issues confronting the two nations, the proverbial tip of a rather large iceberg capable of doing considerable damage to the America.

Not that trade issues are entirely irrelevant. The president is counting on rising exports to keep the current recovery on track, making it easier for him to defeat whoever survives the Republicans’ efforts to self-destruct. With Europe entering or already in recession, the Chinese market beckons, even if that country’s growth rate slows from the torrid double-digit rate of recent years. But the Chinese regime is in no mood to play by rules that the Americans consider “fair.” They need to provide millions of jobs for an increasingly restive work force, which means keeping the export machine running at full tilt, and doing whatever is necessary to foster the development of state-owned enterprises (SOEs) that can sell their wares in international markets, displacing competing American firms.

Although Xi listened politely to the litany of American complaints, China will continue to manipulate its currency, holding down its value so as to stimulate exports and discourage imports. The regime continues to require U.S. companies to turn their technology over to subsidized Chinese SOEs if they are to be given access to China’s markets. SOEs are directed to buy high-tech products from the hometown boys in order to foster development of industries of the future. The regime does little to prevent piracy of U.S. technology and materials protected by copyright. Non-tariff barriers to imports abound.

Xi, yet to be officially confirmed, was in campaign mode almost as much as Obama and Biden, although his constituency in a country of over one billion people is much smaller than Obama’s: the Communist party ruling elite. “We hope the U.S. side will take steps to address Chinese concerns,” Xi told reporters.

The least of those concerns relates to trade, although Xi undoubtedly repeated his country’s worries that American inability to control its deficit—President Obama’s new budget is splashed with red ink—will eventually lead to a devaluation of the mound of dollars salted away in China’s vaults. He also complained about U.S. restriction of exports of many high-tech products, stuff the Chinese need for their development and, presumably, to provide raw material for its intellectual-property pirates.

For Xi, his visit to the Commerce Department and a gaggle of CEOs, many of whom are less willing to overlook China’s assaults on free trade than they were a few years ago, was surely of less interest than his visit to the Pentagon where, after receiving a 19-gun salute, he met with Defense Secretary Leon Panetta and General Martin Dempsey, chairman of the Joint Chiefs of Staff.  Xi, who began his career as an aide to an army general and is vice chairman of China’s Central Military Commission, is better connected with the Chinese military than President Hu Jintao, who is completing his 10-year term in China.

Which brings us back to Bob Kagan. Kagan, one of Mitt Romney’s foreign policy advisers, became an Obama favorite whose essays get a paragraph-by-paragraph analysis at the White House. This, even though Kagan argues that the president’s favored international institutions can never replace American power as defender of the liberal economic and political world order. But, hey, you can’t expect the president to agree with every jot and tittle of an academic’s scribbling, only those parts that fit his campaign narrative.

The president finds the part of Kagan’s argument that America is not in decline, has never been omnipotent in world affairs, and needs a strong economy if it is to retain its global leadership position ammunition to fire at any Republican who argues that he has presided over a decline in American power and influence.  

One reason Xi came to America is to protest Obama’s expansion of the American military presence in Asia. Hu Jintao had earlier complained that America is building “a wall of containment” around China, to use Kagan’s phrase. “What the Chinese find really upsetting,” he continues, “is the extent of American’s military alliances,” some fifty, whereas China has not a single ally in its region, with the exception of North Korea, as much a liability as an asset. To make American intentions at strengthening these alliance and its presence in Asia clear to Xi, Secretary Panetta timed congressional testimony detailing the expanding U.S. military presence and capabilities in Asia to coincide with the Washington visit of the future Chinese.

This new military emphasis on Asia, a so-called “Obama pivot,” is not unrelated to American insistence that China play by the rules in economic affairs. “The growth of China’s economy … [has] implications for American power in the future,” writes Kagan, “if the Chinese translate enough of their growing economic strength into military strength.” Which, of course, they are doing: building aircraft carriers that project power, developing missiles that can send American carriers to the bottom of the China Sea, increasingly the asserting various territorial claims, and hacking into U.S. government and corporate computer networks.

Which suggests that American efforts to persuade China to abandon its trade practices, in any event doomed to failure, has as much to do with power as with money. China’s currency manipulation, subsidization of its SOEs and other export enhancing practices provide funds to pay for an expanded military. They also create a voracious demand for oil and other commodities, a demand that is forcing China to extend its reach to Africa and to America’s backyard, Latin America. In addition, the earnings from trade are used to make loans that add to Chinese influence. The Financial Times reports that the $75 billion China has lent to Latin America since 2005 exceed the total made available by the Inter-American Development Bank, the World Bank, and the Export-Import Bank.

With that financial presence goes influence, influence to gather support for an assault on the free trade, liberal economic order until now underpinned by American power. If there ever was a prescription for big-power rivalry, rather than the “mutual respect” that Xi demands and the “strong relationship” Obama says he seeks, this is surely it.    

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