Newsweek's Disgrace: Trade Wars and Appeasement

by WILLIAM R. HAWKINS January 4, 2017

I was shocked by the cover art of the December 16 issue of Newsweek magazine which depicted a large Chinese dragon in humanoid form delivering a devastating uppercut (claws extended) to Donald Trump, sending the President-elect flying backward with his American flag tie flapping wildly. I did not see this issue until after Christmas when I spotted it in an airport shop in California. That it was the John Wayne airport, named after the symbol of American patriotism and strength, made it particularly disturbing, as Newsweek was evidently trying to convey that these national attributes no longer hold.

Approval of such an obscene cover had to be made at the publication's highest level. At a time when left-wing social media is full of threats of disruptive protests and even death threats against the incoming President, artwork showing a physical attack on Trump is unacceptable. Newsweek has long been the most liberal of the major news magazines, something that undoubtedly has contributed to its downward spiral. And it was embarrassed by having to recall 125,000 copies of its special "Madame President" issue that was sent to retailers just before the election. So there are those at the top who would like to see Trump knocked out by somebody; but to make that China shows the triumph of partisanship over patriotism since a victory by Beijing would damage the United States and its people, not just one man.

The headline that ran with the cover art was "Trade Wars: Donald Trump Takes on the World." And behind the Chinese dragon were flags of other countries, most notably Mexico. So the image was not only that of China as the stronger party in a confrontation, but of China leading the world against the United States. This is, of course, the dream of the Communist dictatorship in Beijing, but it should not be the wish of those publishing a putative American magazine.

And it certainly does not portray reality. Though China has made astounding material progress over the last two decades, it is not yet a peer competitor of the U.S. The balance of power is still strongly in America's favor with an aggregate economy nearly twice as large as China's (and seven times as large on a per capita basis) endowed with more advanced technology that translates into, among other things, military superiority. China has been closing these gaps, and becoming more assertive as it has done so. But nowhere is there more concern about the gap remaining than in Beijing. Its strategists worry constantly that America will wake up to the challenge of a 'rising China" and put an end to the threat while it still has the power to do so. They know as students of their own history that if the positions were reversed, they would kick their rival back down the hill before he got anywhere near the top.

While Americans look to the Founding Fathers (to the extent they bother studying history at all), the Chinese look to the Warring States period, roughly 475-221 BC. "It was a brutal, Darwinian world of competition" writes Michael Pillsbury in his stellar 2015 book The Hundred -Year Marathon: China's Secret Strategy to Replace America as the Global Superpower. The main lesson to be learned from history is how weak states can overthrow and replace the old hegemon. The current meaning of such a struggle is not very subtle, given how often the U.S. is described as the hegemon. The key is deception since if the hegemon sees the threat coming, he is expected to take counter action. With Trump's election, the Chinese fear that day has come.

The actual Newsweek article on trade is far more muted and nuanced than the inflammatory and misleading cover. Author Bill Powell (a former China bureau chief for Fortune magazine) contradicts the artwork repeatedly in his essay, even though he has to conform to the mandated editorial conclusion. He writes, "The conventional wisdom about a U.S.-China trade war---- that it would inevitably blow up in the U.S.'s face--- in not necessarily correct." He cites Michael Pettis, a finance professor at Tsinghua University in Beijing, who has argued that "The historical precedents are pretty clear that during times of trade and currency war, it is the surplus countries that are most vulnerable." This is common sense. The purpose of the change in trade policy proposed by Trump is to eliminate China's trade surplus which has transferred some $2 trillion to Beijing over the last ten years, along with capital and technology; while as many as 5 million American jobs have been outsourced to a foreign land that is not only a commercial rival but a geopolitical adversary. 

Trade should not be considered an independent variable. It is properly considered part of a foreign policy conducted in accordance with national strategy. Tragically, this has not been the case in Washington for some time.

Powell does repeat the common error that restricting Chinese imports will hurt American consumers; an argument that has the nature of economic development wholly backwards. No individual, enterprise or society has ever gotten rich by consuming. Consumption is a use for income; it is not its source. Wealth comes from production which generates income when goods (or services) are sold at a profit. Profits and income earned beyond what is spent on consumption generates capital which goes to further expand production, creating growth in capabilities (including employment). To start with consumption is to start at the wrong end of policy. The real object in commercial competition is to gain control of markets to support production. And if you have a large domestic market, protecting it become the cornerstone of strategy. Then you expand beyond. A trade deficit, however, indicates that your markets are shrinking, nor growing.

When I was working in factories in Illinois to earn money for graduate school, my fellow workers were using their wages not just to shop at Walmart, but to buy homes, save for retirement and send their kids to school. They needed good jobs to support middle-class aspirations. Those factories are now closed, and the loss of those jobs cannot be made up by saving a buck on t-shirts at the mall. And a good job is also about social cohesion and self-respect. An economy that generates mainly part-time jobs at minimum wage is a policy failure across the board, not just bad economics. Unfortunately, if left on their own under "free trade", transnational corporations will pay no heed to these larger concerns. Which is why another lesson of history is that "free trade" remains a sophistry of pseudo-intellects and a device of special interest propaganda, not the stuff of successful nations and empires in a contentious world.

Even those "business leaders" who have bet so much on the airy notions of classical liberalism may soon meet a dismal fate. As Powell points out, the landscape for transnational (i.e. non-Chinese) firms is not getting better as Beijing's policy promotes further improvements in domestic industry. Thanks to mandated partnerships with foreign firms that gained them technology, capital and general "know how" Chinese firms are poised to do what was always intended, replace the foreign interloper and control their own future. Powell's article even ends with the highlighted statement "China is going to undermine the investments Americans make [there] and kick us out as soon as it can." Anyone familiar with how Chinese nationalist fervor interprets the era when Western powers carved the country into spheres of influence based on "exploitive" trade (the "Century of Humiliation") saw this coming; but such warnings carried no weight in boardrooms lusting after profits based on faulty models infused more by hope than knowledge.

China has been waging a trade war for decades. Indeed, its entire "rise" has been the result of a successful strategy of commercial conflict; laying waste to foreign industry, plundering technology and reinvesting the gains to build up the nation's capabilities in pursuit of great power status. Trump is not starting a war; he is ending an era of appeasement that let Beijing make dangerous strides uncontested.

Liberals in the media and academe, backed by those special interests who think they can still profit from helping China rise, will continue to argue for appeasement. But their words should carry no weight against a policy aimed at creating good jobs for Americans and maintaining U.S. leadership in the global balance of power. The scene that deserves to be depicted in art is that of the dragon slinking back into its cave with its wings clipped.

William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former economics professor and Republican Congressional staff member.


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