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Generational Dynamics Web Log for 17-Jan-2020
17-Jan-20 World View -- US and China sign Phase I of the US-China trade deal

Web Log - January, 2020

17-Jan-20 World View -- US and China sign Phase I of the US-China trade deal

Cracking down on Amazon, Walmart, Alibaba and Shopify

by John J. Xenakis

This morning's key headlines from GenerationalDynamics.com

US and China sign Phase I of the US-China trade deal
Peter Navarro: China's seven deadly sins
Cracking down on Amazon, Walmart, Alibaba and Shopify
China shifts to regional trade

US and China sign Phase I of the US-China trade deal

Chinese Vice-Premier Liu and Donald Trump shake hands after signing the agreement (SCMP)

Chinese Vice-Premier Liu and Donald Trump shake hands after signing the agreement (SCMP)

There are two ways to look at the US-China Phase I trade deal that was signed in Washington on Wednesday.

One way is that is that it accomplished so little that it's nothing more than a temporary ceasefire in the US-China trade war.

The other way is that it was a good first step and accomplished some things in forcing China to open up its markets, but that there's a long way to go in Phase II.

Let's start with the basics: As I've said many times in the past, North Korea will not give up its nuclear weapons and missiles, no matter what Trump does, and China will not give up stealing intellectual property and trade secrets, no matter what Trump does. Trump knows that too. China's criminal activities are deeply embedded in China's culture, which considers Americans to be barbarians, and they could never be resolved without a war. All that Donald Trump can do in negotiations is to postpone the worst effects of these Chinese and North Korean policies, and do everything possible to protect the United States and the West from the inevitable World War III that China and North Korea are preparing against Japan, Taiwan and the United States.

Donald Trump said that he is not removing any of the existing tariffs or sanctions on China at this time, because he needs them in place "as cards" to negotiate with in Phase II, but they will all be removed at the successful completion of Phase II. Negotiations for Phase II will not begin until after the November elections.

Peter Navarro: China's seven deadly sins

Peter Navarro is President Trump's Director of Trade and Manufacturing Policy. He's considered to be a "hardliner" on the China negotiations. He appeared on television in August, and recited a list of seven structural issues in China's economy that have to be resolved by trade negotiations:

Cyber intrusion into business networks
Forced technology transfers in exchange for market access
Intellectual property theft
Dumping into our markets
State owned enterprises which are heavily subsidized
Currency manipulation
Killing Americans with fentanyl.

In a television interview on Wednesday, Navarro reviewed the US-China agreement, in view of the above list of China's "seven deadly sins." According to Navarro, America got the following in the agreement:

Strong protections for intellection property, worth $300-500 billion per year.
A start on ending forced technology transfer.
A strong currency manipulation provision.
Full ownership of a business in China by an American company permitted.
Access by American financial firms -- banks, credit cards, insurance companies -- to the Chinese marketplace, which has previously been completely closed off.
$200 billion of additional purchases over the 2017 benchmark, spread over two years, spread over four sectors -- agriculture, energy, financial services, manufacturing.

These are all nice promises, but China has always made nice promises, and then simply ignored them the day after they were made. Navarro claims that this time it's different, because there's an enforcement mechanism:

"The judge, jury and executioner is on our side of the fence. This is not WTO (World Trade Organization) rules where you take three years and get nowhere. This deal calls for a 90 day clock, controlled by [U.S. Trade Representative Robert] Lighthizer. If there's an issue, it comes to him, and he negotiates with this counterpart in China. If we don't get satisfaction, we unilaterally have the authority to take proportionate measures."

Whether you believe that this enforcement mechanism will make a difference is up to you.

According to Navarro, that was a "solid Phase I," and some things have been left for Phase II:

Unfair subsidies of state-owned enterprises.
Cyber intrusions. "Uniformed members of China's military sit in Shanghai and hack into computers in the US. They'll sit there for a year and steal information. They promised in 2015 to stop doing it, but they haven't."
China is continuing to kill Americans with fentanyl.

Cracking down on Amazon, Walmart, Alibaba and Shopify

Navarro said that the US will crack down on companies like Amazon, Walmart, Alibaba and Shopify who have served as "facilitators" for the import of contraband goods from China.

Navarro said that a million packages come into New York's Kennedy airport every day. The U.S. Customs and Border Protection (CBP) agency ran a project called Operation Megaflex, which sampled thousands of these packages coming in from China, and found that 15% of them contained contraband. Half of them are counterfeits, and the other half are controlled substances, like fentynol, and also gun parts, and fake drivers licenses.

Navarro expects China to police these operations, but on the American side, distribution companies that make a great deal of money by importing and selling this contraband will also have to police them, or will face civil fines or penalties or loss of import licenses.

China shifts to regional trade

According to analysts, the Chinese are breathing a sigh of relief because, even though the existing tariffs will not be lifted, this agreement means that any new tariffs will be postponed. And since Phase II negotiations won't even begin until after the November election, the new tariffs will be postponed indefinitely.

As I've described in the past, Trump administration has placed additional restrictions on Huawei to slow down the company's rapid takeover of portions of the internet. Huawei is heavily subsidized by China's government to undersell foreign competitors with routers and other networking equipment that many people (including me) believe contain "backdoors" allowing China's military to control those devices at any time. In fact, in 2017, China passed a National Intelligence Law that compels every Chinese company to take exactly those kinds of steps. Trump's tariffs have affected not only Huawei, but also the supply chains of many military-related firms in China. Obviously, these steps can slow down China's military, but not stop it.

Trump's restrictions on trade with America has been a benefit to China's neighbors, with whom Chinese firms are actively seeking to trade. This has resulted unexpectedly in quick agreement on a free trade agreement for Asian nations, the Regional Comprehensive Economic Partnership (RCEP).

The participants in RCEP are the ten members of the the Association of Southeast Nations (ASEAN) -- Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam -- plus five additional nations -- Australia, China, Japan, New Zealand and South Korea, with India eventually deciding not to participate.

The RCEP trade agreements will fill any holes left by the US-China trade tariffs. China's military will be slowed down by the tariffs, but will not be stopped.

John Xenakis is author of: "World View: War Between China and Japan: Why America Must Be Prepared" (Generational Theory Book Series, Book 2), June 2019, Paperback: 331 pages, with over 200 source references, $13.99 https://www.amazon.com/World-View-Between-Prepared-Generational/dp/1732738637/

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