In the above-linked opinion piece, economist Dr. Michael Ivanovitch calls for China to “get out of its huge U.S. trade problem.” It’s significant that economists of Dr. Ivanovitch’s ilk, a former economist for both the OECD (Organization for Economic Cooperation and Development) and the New York Federal Reserve, are beginning to recognize the unsustainability of China’s reliance on its massive trade surplus with the U.S. and the threat it could ulitmately pose to peace between the two nations.
Ivanovitch argues that China’s surplus with the U.S. is unsustainable and the longer it attempts to sustain it with endless talks and negotiations, the more it runs the risk of the U.S. seeing China as an existential threat for which it must prepare militarily.
Like all excesses, this one too can badly backfire on China. And it’s not clear what China’s economic and political interests are served as Beijing keeps deliberately pushing the U.S.-China trade relationship into a growing and unsustainable imbalance.
No, China should know that, at some point, the abused party wants out — sometimes violently.
It’s great that economists are beginning to see a danger here, but what they fail to understand is that reducing its surplus with the U.S. isn’t a choice China can make without devastating its economy. China is no different than other badly overpopulated nations – like Japan, Germany, South Korea and many others – in that they either depend on manufacturing for export in order to sustain their bloated labor forces, or they are doomed to abject poverty. Economists don’t recognize the inverse relationship between population density and per capita consumption, and the role it plays in driving up unemployment and poverty. They don’t recognize it because they refuse to even ponder the ramifications of human population growth out of fear of being labeled “Malthusians,” a virtual death sentence for an economist’s career.
China may not understand it either, but they do understand how heavily dependent they are on the export market – especially the U.S. – and they understand that, for reasons that may escape them, it’s proving impossible to transform to an economy driven more by growth in their own domestic consumption.
China will never willingly cede any of its surplus with the U.S. If the U.S. wants to move toward a balance of trade with China, it must take matters into its own hands, and the use of tariffs is the only tool at its disposal. It’s time for Trump to stop being suckered by China’s willingness to engage in talks that drag out forever. Lay down the law, slap 25% tariffs on all Chinese imports, and tell China they will only be reduced when a balance of trade has been established, and even then by just enough to assure that such a balance is maintained.