Trump’s Tariffs Unite China and Russia

The Daily Escape:

Detail of the Peacock Gate, the City Palace, Jaipur India – photo by Miya.m – CC BY-SA 3.0

Do you know about the Eastern Economic Forum (EEF)? The EEF was started by Russia in 2015, as part of Moscow’s push to revitalize its ties with Asia after its relations with the West began to sour. The US doesn’t attend, although CA governor Jerry Brown attended in 2017.

Now, it attracts heads of state from around the East Asian region. President Xi of China attended this year for the first time. It was the third time that Xi and Putin have met in 2018, and the outcome of the EEF meetings could have significant implications for the US.

The Diplomat reported that according to Li Hui, China’s ambassador to Russia:

At present, China-Russia relations are at their best in history…the two heads of state attending significant events held by each other are important manifestations of the high-level bilateral relations.

So, why now? What’s behind China’s and Russia’s fast-developing relationship? It seems to be the US tariff war. The Asia Times says:

Xi defines the partnership as the best mechanism to ‘jointly neutralize the external risks and challenges’. For Putin, ‘our relations are crucial, not only for our countries, but for the world as well.’

At the EEF, Putin and Xi agreed to keep increasing bilateral trade payable in yuan and rubles, bypassing the US dollar. Putin also swiped at Trump’s tariff policies:

The world and global economy are coming up against new forms of protectionism today with different kinds of barriers which are increasing….basic principles of trade — competition and mutual economic benefit — are depreciated and unfortunately undermined, they’re becoming hostages of ideological and fleeting political situations, in that we see a serious challenge for all of the global economy, especially for the dynamically-growing Asia-Pacific and its leadership…

Reuters reported that Xi also appeared keen to foster closer relations with Russia:

Together with our Russian colleagues, we will increase fruitful co-operation in international affairs and intensify co-ordination…to oppose the policy of unilateral actions and trade protectionism…

Their relationship will continue to improve, since the Trump administration plans to continue ratcheting up its trade war. Trump recently threatened placing tariffs on all Chinese exports to the US.

And, on the same day as Xi arrived for the EEF, Russia kicked off its Vostok 2018 military exercises, with China taking part for the first time.

All of this is largely a giant signal to the US, since Russia can’t come close to replacing the US as a major trade partner for China. Sino-Russian trade is less than $100 billion per year, while trade between the US and China was more than $630 billion last year.

China’s strategy is to start by reducing its dependence on US agricultural imports. One example is soybeans. Econbrowser reports:

The Chinese plan is — in addition to relying on Brazil and Argentina — to switch to other sources, like palm mill, rapeseed, sunflower seed, and other countries, such as Russia, Ukraine and Kazakhstan, for soybeans. Obviously, the development of other countries’ ability to grow soybeans will take time. But that was also true for Brazil.

More broadly, attending the EEF gave Xi another platform from which to attack the US trade war, and pledge to defend rules-based trade. Our partners, the presidents of South Korea and Japan, also are watching closely. South Korea is looking to build a rail connection across Siberia, which requires help from China and Russia. The South China Post reported on Japan’s Prime Minister Abe, who attended the conference, and agreed to a summit with Russia:

Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin agreed Monday on further details of joint economic activities on disputed islands off Japan’s northernmost main island of Hokkaido

They also confirmed their close cooperation toward the denuclearization of North Korea ahead of the third summit between North and South Korea, scheduled for September 18.

The message is that the nations of Asia no longer see us as a reliable partner, and are walking toward forging new alliances with both China and Russia.

Our walking away from the Trans Pacific Partnership, which included all Asian countries except China in a free trade zone, seems to have been a geopolitical error. Trump’s tariff war seems to be another.

The US is alienated from Russia over US election interference, cyber warfare, Ukraine, Crimea and Syria. We have responded with sanctions, and truculence.

The US is alienated from China over trade, and the Trump administration’s perception that China isn’t helping our negotiations with North Korea.

We are at risk of being sidelined in Asia, and our allies are watching.

What’s this administration’s plan to succeed on all of these fronts in Asia?

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Free Trade’s Double-Edged Sword

The Bernie Sanders win in Michigan is chalked up to his attacks on trade agreements, in particular, the Trans Pacific Partnership that resonated with a broader audience than his attacks on Wall Street. Along the way, Donald Trump has been plowing the same ground, talking about how America is losing jobs to Mexico and Asia.

So the question is, are we seeing a political backlash against trade? Can Sanders or Trump gain sufficient political traction to win with this issue? And can we blame trade for losing jobs to China and elsewhere?

Jared Bernstein in Monday’s New York Times made an excellent point: (emphasis by the Wrongologist)

The economic populism of the presidential campaign has forced the recognition that expanded trade is a double-edged sword. The defense of globalization rests on viewing Americans primarily as consumers, not workers, based on the assumption that we care more about low prices than about low wages.

When you hear politicians speak about free trade, they talk about cheaper products. They sidestep the terrible impact on American jobs, they sidestep the concern that many, many jobs have been lost through free trade agreements. The free trade deals have also exacerbated the loss of union power, which means fewer (and lower paying) jobs, fewer hours, and poorer benefits, including pensions.

The trade topic is obviously a huge driver of Trump’s and Sanders’s appeal. It is a problem for Hillary, since she was for the Trans-Pacific Partnership before she was against it.

Despite being on opposite ends of the political spectrum, the two populists are using the same message: The government, both political parties, and business are working at cross-purposes with the needs of the American people. In a democracy, populism is a warning sign that government has been disconnected from its citizens. Consider that while Americans lost at least 4 million jobs, corporate profits are up, and the 1% has gotten much wealthier.

It’s true that off-shoring is good for the global economy. Chinese people working to make iPads are richer than they were, but it’s not a win-win situation. It’s more of a win-lose, where Chinese workers win relatively big, while American workers lose medium.

Another problem is that workers directly impacted by trade have little power or influence in their firms or the country as a whole. In the US, exports only make up about 13.5% of GDP. But in Sweden, Denmark or Germany, exports are north of 40% percent of GDP. And these countries, with far fewer natural resources, have robust social safety nets in addition to high wages. And as Bernstein says:

The real wage for blue-collar manufacturing workers in the United States is essentially unchanged over the past 35 years, while productivity in the sector is up more than 200%.

Why? Because governments in these other countries stress building high-skill industries that compete based on producing high value-added products, while low-skill industries that compete based on exploiting their employees are discouraged. This is called having an industrial policy, which encourages business to meet government priorities. In America, we are against having industrial policies, because it sounds like socialism.

Bernstein points out that the free trade negotiation process has been captured by investors and corporate interests:

According to the Washington Post, 85% of the members of the outside committees advising the administration on the proposed Trans-Pacific Partnership were from private businesses and trade associations (the rest were from labor unions, NGOs, academics and other levels of government).

And that’s the world we live in. Business is driving most of the decisions that our politicians make, ensuring that whatever is enacted is primarily good for business, and secondarily, if at all, for We, the People.

And in the world we live in, free trade has significantly boosted wages and quality of life for overseas workers and has helped lift millions of Chinese and other Asian citizens out of poverty, while our middle class, a prerequisite for our stable society, has been hollowed out.

Yet, America’s plutocrats and politicians push for even MORE free trade.

The current election cycle may horrify the “political establishment,” of both parties, but it was preordained by their bought-and-paid-for politics.

Americans have a real gripe. They don’t see, or care about the benefits to Chinese and other third world workers that lower or stagnant wages at home help to provide. The Bernie win in Michigan and Trump’s success in the GOP primaries show people are super pissed off.

Our political parties better start coming up with ways to mitigate the trade and wage problem before someone like DonDon actually succeeds in becoming president.

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