Mar 22nd 2016

Why Donald Trump’s China-Bashing Makes No Sense

by Daniel Wagner

Daniel Wagner is CEO of Country Risk Solutions, a Connecticut-based cross-border risk advisory firm and author of the book Managing Country Risk. CRS provides a range of services related to the management of cross-border risk. He is also Senior Advisor with Gnarus Advisors.

China bashing has become as much a part of the modern American political tradition as criticizing foreign producers of oil. The American electorate has regrettably become accustomed to the predictable torrent of anti-Chinese rhetoric from politicians of a variety of political persuasions – currently manifested by the incendiary rhetoric of Donald Trump, who is playing upon the fears and disillusionment largely of blue collar workers who do not understand that China is not the source of their problems, but rather America’s failure to remain competitive in the global economic landscape.

They also do not realize that China will soon reassume the mantle of the world’s largest economy – a title which it held until just before the start of the Industrial Revolution. Until that time China was the leading steel producer, textile manufacturer, and trading nation[1] -- from the Chinese perspective, it is simply about to resume the status which it previously held. Some Americans may bristle at the notion that capitalism has helped China come to dominate the global economy, but the truth is, China was practicing capitalism a long time before America even became a nation. 

China is not above criticism, and some American politicians do raise some valid points in criticizing China, such as that the government controls large parts of the Chinese economy through state-owned enterprises, which distorts the domestic market and gives some Chinese companies unfair competitive advantages. But what they then fail to say is that China must also compete in the global marketplace, and that it pays a price for supporting companies that should otherwise fail as a result of being poorly run, inefficient, or bloated.

If the U.S. does not like the way China does business, it is of course free to do business somewhere else, but that would be a really bad idea for America.U.S. exports to China totaled $120 billion in 2014, making it the third-largest export market for U.S. goods (behind Canada and Mexico). Between 2005 and 2014, U.S. exports to China increased 198% - greater than growth to any of the other top ten U.S. export markets.[2] The truth is, there is no country in the world more important to the growth of U.S. exports than China. 

China's rapidly growing middle class is the single most important factor accounting for the success of President Obama's National Export Initiative. The U.S. not only needs to tap China’s vast foreign currency reserves ($3.3 trillion – almost 28 times that of the U.S., at $119 billion[3]) in order to finance its trade deficit and fiscal deficit, it also needs access to China’s vast market in order to sustain its economic recovery and continue to create much needed jobs for American workers. When was the last time you heard a U.S. politician admit that? 

Six of the top ten states that lead in exports to China (California, Illinois, Ohio, South Carolina, Texas, and Washington)[4] set records in 2014 for exports and creating export-related jobs. Just ask any Chamber of Commerce in these states what their view of China is and you will find they are highly complimentary of the contribution China is making to the creation of jobs in their states. Since 2000, China has invested tens of billions of dollars in the U.S, generating tens of thousands of jobs. 

In 2015, 18% of Chinese exports went to the U.S.[5], which remains a very important partner for the growth of the Chinese economy. Chinese leaders realize this, and do not reciprocate in bashing the U.S. for allegedly taking away Chinese jobs by doing business together. Campaign rhetoric aside, both countries know that they need each other. As the largest holder of U.S. Treasury Bills, China needs and wants the U.S. to succeed economically. Rather than bashing China, U.S. politicians would be well advised to forge an even stronger relationship with it.  Instead of following predictable and boring scripts, U.S. politicians should turn the page on Cold War-esque rhetoric and find ways to join hands with China so as to mutually benefit from each other’s comparative advantages.

It is also worth noting that China bashing actually makes little sense in terms of getting U.S. presidential candidates elected. The top five U.S. states exporting to China by dollar volume in 2014 (Washington, California, Texas, Illinois and South Carolina)[6] between them account for nearly 50% of the votes needed to win the U.S. presidency in the Electoral College (270 votes are required, and 134 votes are accounted for by just these 5 states). Bashing China is actually less likely to get a candidate elected, because the workers in these states have the most to lose economically by curtailing America’s economic relationship with China, and they know it.

The fact is, a continued economic recovery in the U.S. cannot be achieved by isolating China. Considering what can be achieved together, and what both countries stand to lose if they are pitted against each other, forming a Sino-American strategic alliance is critical to the future economic viability of both nations. American politicians, and the American people, would be much better off recognizing this, rather than succumbing to demagoguery and incendiary rhetoric aimed at creating divisiveness between China and the U.S.

 

*Daniel Wagner is CEO of Country Risk Solutions and co-author of the forthcoming book “Global Risk Agility and Decision Making”.

 

This article first appeared in the South China Morning Post.



Daniel Wagner is CEO of Country Risk Solutions and co-author of the forthcoming book “Global Risk Agility and Decision Making” (Macmillan, May 2016).

For Country Risk Solutions' web site, please click here.

You can follow Daniel Wagner on Twitter: www.twitter.com/countryriskmgmt




 


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