18 December 2016 ~ 0 Comentarios

Trump, China and the Thucydides Trap

By Carlos Alberto Montaner

trumpganaIt seems to me fine that President-elect Donald Trump answered the phone call from Tsai Ing-wen, President of Taiwan. Politeness and prudence are not mutually exclusive. Tsai is an educated and intelligent woman. The island of Taiwan is, after all, an ally of Washington’s, with which it shares very strong historical links in economic and military affairs.

Actually, that courteous gesture does not endanger the “one-China policy” proclaimed in the days of Jimmy Carter. The president of the United States has the right to talk to whomever he wishes and Chinese diplomacy should not be so touchy and sensitive over symbolic issues.

Still, it’s a lot more dangerous to threaten that country with economic sanctions and import tariffs, in view of the favorable trade balance that China enjoys over the United States, as if commercial transac

tions were a zero-sum game in which one side wins everything that the other loses. Frankly, I thought that Donald Trump had a better understanding of economic phenomena.

Broadly speaking, the United States is not impaired by a huge factory in the Pacific that provides goods to U.S. consumers that are between 30 and 40 percent cheaper than if they were equivalent products manufactured in the United States, in exchange for a totally hegemonic paper currency that has no backing other than the enormous prestige of the issuing country.

True, some American workers lose their jobs because of Chinese competition, but the savings from the goods obtained in that country are transformed into other jobs created in the United States. It is no coincidence that the unemployment rate of the U.S. workforce is barely 4.6 percent. Economic globalization is a general blessing, though it can be a particular curse. If there’s a country that shouldn’t complain about it, it’s the United States.

The concern over the trade balance is mercantilist mania that was discarded in the late 18th Century by thinkers like Adam Smith. A substantial part of the profits gained by the Chinese (or by the U.S. companies that manufacture their products in China) are used for the purchase of U.S. goods, for the purchase of U.S. Treasury bonds, and for the care of tens of thousands of Asian students in the U.S. university system.

China is the largest foreign holder of U.S. debt, about a trillion-and-a-third dollars, followed closely by Japan. If a trade war began between Washington and Beijing and the Chinese put up their bonds (or part of them) for sale, the United States would have to make its debt more attractive by raising the interest rates, which would backfire badly on the total payment and force the country to raise taxes to deal with the obligations, inasmuch as the U.S. debt is already more than 106 percent of the GNP.

In addition, there is the consumer’s sovereignty, which Mr. Trump, Mr. Sanders and all protectionists should learn to respect. If a consumer decides to buy a Chinese, German or Canadian shirt or computer, it is totally unfair and arbitrary to force him to desist from his choice by imposing tariffs that raise the price of the item desired.

It is also a perversion of the market economy for Trump to phone the CEO of Carrier’s and offer him economic advantages to remain in the United States. Those subsidies, which come out of the pockets of all taxpayers, are contrary to the essence of a system based on competition of prices and quality.

The president of the United States is not an absolutist monarch who chooses the subjects and courtiers he wishes to reward, to the detriment of the other producers. That nefarious practice is contrary to the rules of the World Trade Organization, which the U.S. helped build.

It is absurd and extremely dangerous for Donald Trump to see China as an enemy, and for him to have felt in the past that countries like Japan and South Korea should manufacture atomic weapons to defend themselves from a hypothetical nuclear attack. Proliferation increases exponentially the risk of war.

Harvard professor Graham Allison called The Thucydides Trap the danger that a great power might try to annihilate an emerging power because of unfounded fears. According to the general and historian Thucydides, that’s how Sparta unleashed the Pelopponesian War against Athens, 2,400 years ago. Let’s hope that Trump won’t fall into that trap against China. It would be devastating for us all.

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