Sun Tzu once said, “Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.” President Trump’s moves concerning China raise the question: what is his endgame? Does he really want a trade deal, or is he seeking the destruction of the Chinese Communist Party by permanently decoupling the United States from China?
First things first: China is losing the trade war. This was always going to happen, because the United States has all the leverage. China’s economy is dependent on America’s huge consumer market. Every country wants access to the American market, which means the US doesn’t need China’s imports. There are plenty of substitutes.
On the other hand, China’s economy is very narrowly focused. They rely on importing raw material and exporting finished goods. Likewise, they have no entrepreneurial class. The US has entrepreneurs, plenty of raw materials and it’s the world’s destination market. China needs us; we don’t need them.
Since China is dependent on exports for survival, they recently weakened their currency. International exchanges involve transactions in different currencies. When an American company imports product from a Chinese company, they use yuan. When the yuan is weaker than the dollar, Americans can buy more Chinese products. In other words, when a country’s currency weakens, the price of that country’s products becomes cheaper.
Basically, China is having a sale on all its products. Although this increases exports, over time, it also raises costs. Companies sell for less and raw materials are more expensive because the yuan doesn’t buy as much. Naturally, for consumers, a weaker currency means higher prices. Currency manipulation reduces the purchasing power of Chinese companies and Chinese consumers. It’s a desperation move.
For starters, it’s unlikely to increase Chinese exports to the US, because American tariffs on China are so high. What’s more, several companies are moving their production out of China in order to avoid paying these tariffs. The Wall Street Journal pointed out, “The moves by U.S. companies add up to a reordering of global manufacturing supply chains.” Shawn Nelson, the CEO of Lovesac, said his company has “been shifting production to Vietnam very aggressively” and added that “once you move, you don’t go back.” Establishing supply chains is challenging. The longer China waits, the more companies leave and never return.
Of course, the process of reorganizing global manufacturing supply chains and redirecting American investment could get a bit bumpy. That’s why President Trump has been renegotiating America’s trade deals and emphasizing America’s energy exports. For example, the US plans to make a massive bilateral trade deal with the United Kingdom upon leaving the European Union. The US already signed a comprehensive trade deal with South Korea and the US and Japan are close to a big trade deal.
Most importantly, the US ditched NAFTA and has negotiated the USMCA, which is awaiting congressional ratification. The USMCA, “eliminates NAFTA rules that allowed producers to ‘deem’ non-North American content as originating, regardless of origin. This will reduce free riding and help ensure key auto parts are made in the region.” Translation? China can longer export auto parts to Mexico and Canada to avoid American tariffs. American automobile manufacturing is back.
In addition to trade deals, America’s energy exports are reshaping the global economic landscape. Lithuania and Poland have started importing US liquefied natural gas, while Ukraine has begun importing US anthracite coal. By the way, the International Energy Agency predicts that by 2024, the US will be the world’s biggest liquefied natural gas exporter and China will be the biggest importer. That’s yet another area in which the US could have leverage over China.
On top of that, President Trump is leveraging key allies in the Pacific to counter China’s influence. For example, the US approved a $2.2 billion arms sale to Taiwan, one of China’s biggest enemies. Australia, Japan and the US have partnered to mine and process highly valuable rare earth elements. The trio has also joined forces to finance a liquefied natural gas project in Papua New Guinea. Without a doubt, the US supports Japan’s efforts against China in the so-called Southeast Asia infrastructure race. For what it’s worth, Japan is currently winning.
Perhaps taking a cue from Japan, Australia has shown a newfound willingness to invest in the region, including cybersecurity deals with Vanuatu and the Solomon Islands. Australia is even planning on creating a new military unit to train and help its Pacific allies. Could this be why President Trump has invited Prime Minister Scott Morrison for a state dinner at the White House? Trump is even redirecting NATO to focus its attention on China. Clearly, this is about more than just trade deficits.
All told, the trade war with China has many objectives, including the restoration of American sovereignty through rebuilding our manufacturing base. More than that, however, President Trump’s goal is the destruction of the Chinese Communist Party, one of the most powerful, evil and antichristian institutions in the world. Godspeed, sir.