China and Economic Reach: Trump America and Europe at an Inflection Point?


2017-09-14 By Robbin Laird and Harald Malmgren

Putting President Trump and European Union leaders together on the same page may seem an anomaly.

The love the President has for baiting the EU is only matched by European transatlantic assertion of European values and interests against American “revanchism.”

In the real world, the interests of both the US and the Europeans remain significantly convergent.

Nowhere has this this become more evident than in recent responses to the Chinese penetration of their economies.

Chinese leader Xi Jinping has made it a key element of his global outreach to portray his regime as a core driver of 21st century globalization.

In January at Davos World Economic Forum he portrayed himself as the new defender of global order and the polar opposite of the iconoclastic nationalist disrupter, President Trump.

Just as Donald Trump was about to be inaugurated as President, one analyst portrayed the appearance of the Chinese President at the World Economic Forum in January as a new alternative to fading American global economic leadership:

China’s president will preach the advent of a new world order in Davos next week before the high priests of globalisation, who are facing an uprising from voters against their orthodoxy of open markets and borders.

The annual conclave of the World Economic Forum in the Swiss Alps, grouping 3,000 delegates from the worlds of government, business, science and the arts, has created the caricature of “Davos Man”, a rich, rootless globetrotter who worships with fellow disciples in the church of free trade.

But populists are singing from a radically different hymn sheet. Their hostility towards both unfettered trade and immigration has already yielded Britain’s vote to leave the European Union and the rise of once-fringe parties across Europe, including in France and Germany.

The globalist President of China was soon seen in an ascendant role at the moment when President Trump rejected the global climate change Paris agreement (ignoring, for convenience, the Chinese did not have to comply with specific commitments of that accord until many years later).

As Andrew Rettman wrote in a recent EU Observer article:

US president Donald Trump is seen in China as a “gift” for closer EU relations and for tipping the “geo-strategic balance” of power toward Asia.

That is the feeling in Beijing and beyond, according to Alicia Garcia-Herrero, a Hong Kong-based economist from the Bruegel think tank in Belgium, who co-wrote a new study on how to unlock tens of billions of euros in China-EU investment and trade.

“Last year, my children, who go to school in China, didn’t know why so many of their classmates wanted Trump to win the [US] elections, but it was because even normal Chinese families understood the implications. He [Trump] just looked so dumb and so creepy,” she told EUobserver on Tuesday (12 September).

“Trump is the greatest gift that we [the West] could have given to China”, she said.

This Chinese baseline for global expansion of course hid major inconsistencies, particularly the embrace of liberal values within democratic open debate.

When taken into consideration together, this profound division between liberal democracies and a centralized command economy did not suggest future convergence, but rather an historic inflection point in the global distribution of global power.

The first point is rather an obvious one.

The Chinese have little in common with liberal values.

And whatever one think of Trump’s America, the democratic side of the nation has if anything been demonstrated as his agenda becomes redefined through a complex U.S. political process.

For example, there is growing realization in Australia that China is a penetrating power, not a partner in High School Musical globalization.

In a recent interview with Dr. Ross Babbage during a visit to Australia in August 2017, the deep divide was highlighted as a great challenge at this time of history.

The Chinese, the Russians, the North Koreans and the Iranians, just to mention the most prominent authoritarian powers, have little in common with our values. We are paying a big price for not highlighting the true nature of the illiberal regimes to our publics.

“Recently, the Prime Minister of Australia, despite his difficult initial discussion with President Trump, made it clear that the North Korean threat to the United States and Australia created common cause and the need for a common response.

“The fundamentals of the ANZUS alliance remain as relevant as ever. The PM was very clear that a thuggish regime with nuclear weapons threatened our way of life.

“We need more recognition of this and preparation for the contest and conflict starring us in the face. This is the real world; not the world we wish we were living in.”

“Part of the problem here, in my view, is that we have not done a good job of telling our publics about the appalling track record of the Russians, and the Chinese, and the others.

“There are some notable exceptions.

“For example, a really good series of reports on ABC Australia in June highlighted the Chinese penetration of Australia, their cyber operations, their attempts at bribery and corruption and the threat which these operations pose to Australia.

“This series triggered further press reporting and to government decisions to review policies and legal frameworks to deal with the internal espionage, cyber and broader challenge posed by the Chinese and others.”

“There is, however, a long way to go. We need to focus much more strongly on the global competitors who don’t share our values and who are working actively to damage us seriously or bring us down. We need to make our own public’s aware of what’s going on, but also project information and other operations back into the counties that are dominated by these kinds of regimes.

At this moment, in back to back announcements, the Trump Administration and the European Union publicly revealed growing concerns with Chinese penetration of their economies.

According to The Wall Street Journal in a story published September 13, 2017:

President Donald Trump on Wednesday blocked a Beijing-backed fund’s attempt to buy an American chip maker, signaling his administration will closely scrutinize Chinese efforts to invest in U.S. semiconductor technology.

Mr. Trump rejected the transaction after the would-be deal makers—Chinese government-backed Canyon Bridge Capital Partners and Lattice Semiconductor Corp. —made a rare, direct appeal to him. They had hoped he would overrule an earlier negative recommendation by the Committee on Foreign Investment in the U.S., a multiagency panel that reviews deals for national-security concerns.

Instead, the White House said Wednesday that Mr. Trump believes the $1.3 billion transaction could have risked U.S. national security due to “the potential transfer of intellectual property to the foreign acquirer, the Chinese government’s role in supporting this transaction, the importance of semiconductor supply chain integrity to the United States Government, and the use of Lattice products by the United States Government.”

Ironically, in his state of Europe address, the European Commission President Jean-Claude Juncker ON THE SAME DAY underscored the need to tighten foreign direct investment rules to protect the national security interests of Europe.

“We are not naive free traders. Europe will defend its strategic interests with an EU framework for investment screening.”

And Trump-like, the Commission President had this to say about the European steel industry and China:

Being European also means standing up for our steel industry. We already have 37 anti-dumping and anti-subsidy measures in place to protect our steel industry from unfair competition.

But we need to do more, as overproduction in some parts of the world is putting European producers out of business.

This is why I was in China twice this year to address the issue of overcapacity. This is also why the Commission has proposed to change the lesser duty rule.

The United States imposes a 265% import tariff on Chinese steel, but here in Europe, some governments have for years insisted we reduce tariffs on Chinese steel.

I call on all Member States and on this Parliament to support the Commission in strengthening our trade defence instruments. We should not be naïve free traders, but be able to respond as forcefully to dumping as the United States.

It is doubtful Juncker consulted with President Trump on the timing of this statement, but the simultaneous public expressions of concern about China’s ventures and interactions with the economies of Europe and the US should be noted.

Clearly the new President of France has had an impact.

As David Hutt wrote in Forbes on August 17, 2017:

Macron wants to build an “alliance” in the EU to limit the ability of foreign companies to take over European strategic industries. By “foreign” he chiefly means Chinese.

 One such takeover happened in May when China’s state-owned ChemChina purchased the Swiss agrochemical giant Syngenta for $43 billion, the largest Chinese overseas takeover to date.

(Berlin and Paris were reportedly angry that the European Commission approved the takeover.)

And now Europe fears that if more Chinese state-firms purchase its leading developers of advanced technology then it will put the continent at an economic and technological disadvantage.

Underlying the overall Chinese global reach has been its expanding economy.

But there are growing indicators that the Chinese economy is not only slowing down but also perhaps facing severe financial troubles as a result of its shockingly large reliance on expansion of debt to drive its growth through the continuing consequences of the Great Financial Crisis which gripped the world in 2008.

Until that global crisis and the world recession it set in motion, China’s growth was primarily reliant on growth of exports to the rest of the world to power domestic growth at a much higher pace than domestic incomes could sustain.

For decades until the 2008 global financial crisis, world trade had grown much faster than the individual national economies, lifting global growth. In late 2008 world trade started collapsing, remaining stalled for a sustained period for the first time since the Great Depression of the 1930s.

Since then, world trade recovered partially, but at a rate of growth well below the slow growth experienced in recent years throughout most of the world.

This prolonged world trade slump poses a major challenge to Europe, but especially to Germany, the largest European economy.

Germany is heavily reliant on global trade as its primary engine of economic growth.

In the past few years, its exports to China in several key domains, including autos and heavy machinery, have been copied and leveraged by the Chinese to start ramp up their own exports. China was for several years Germany’s biggest export market.

Now China is not only cutting its imports from Germany but exporting to Germany’s other important markets in around the world.

In short, the Chinese economic slowdown and its ripple effects into Europe and beyond, combined with growing concern of how China leverages their economic investments in the economies of the liberal democracies is creating a strategic inflection point which will have profound effects on the pattern of global development in coming years.

China’s heavy reliance on debt, borrowing from its future performance, is placing new strains on how far it sustain its extraordinary growth rates of the last few decades.

Under President Xi it is extending its direct interests far beyond its neighborhood to the rest of the world in its focused attention to One Belt, One Road expansion into Africa, the rest of Asia, Latin America, Central Europe, and even to beyond the gates of Western Europe requires vast new financial support for its global ambitions.

China is seeking to become a global giant, but it is suffering the limits of what it can do posed by the same realities that are constraining economic performance now being suffered in the US, Europe and Japan.

Its economic limitations are partially revealed in its apparent inability to apply force to alter the behavior of its troublesome neighbor, North Korea.

China may now be facing limitations imposed by excessive borrowing from its future, and may be facing a world also beleaguered by debt and unsustainable financial markets, with continuing slump in world trade.

China may be facing a world which is much less than the Davos globalist Chinese President might have envisaged when he took on the mantle of the world’s new globalist economy leader.

As a Danish colleague put it with regard to China in the North Korean crisis: “Isn’t the problem that China exerts no real power over North Korea and if Xi shows this, China loses all fake cards they are holding.”