The 90-day economic agreement with China on Saturday is causing havoc with the stock market, but it just basically kicks the can down the road. It is a trivial gesture in what will be a long war for world leadership on several fronts — economic, cultural and military.
As a director of Reebok in the 1990s, I voted to move production of simple sneakers to China. Korea would continue making the complicated ones.
How clever to outsource production to a low wage economy where workers had no rights and would work very hard for very little.
The Chinese, with faux humility, were grateful to become the factory to the world, sucking up the manufacturing pollution that Western countries could not tolerate. No one forecast the speed of Chinese progress. Instead of plateauing gracefully as Japan did in the 1990s, China’s economy has repeatedly outperformed western forecasts.
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Rather than increased wealth spawning democracy, a grateful populace has accepted one-party rule.
Alarm bells were sounded and ignored. While military experts feared a rapid China arms build-up, U.S. multinationals profiting from access to Chinese factories and its large domestic market lobbied Washington into doing nothing other than complain about human rights abuses.
Meanwhile, Chinese investments of their trade surpluses in U.S. Treasury bonds created an illusion of cooperation and interdependence. The problem is that China is more than four times as populous as the United States and, in the 19th century, was a great trading nation.
Today’s Chinese, young and old, believe it is their duty to restore Chinese leadership and to earn the world’s respect. Unlike us in the West, they are prepared to work weekends to make this happen. And while we distinguish between the state, the military and the private sector, Chinese leaders do not. Industrial espionage is as valid as state spycraft, subsidies to state-owned firms are equivalent to defense spending.
That private Chinese company with whom you are negotiating a joint venture is likely partially owned by the military.
Enter President Trump. Like Peter Finch in the movie “Network,” he’s had enough and he’s not going to take it anymore. He’s pushing back against the long march of China towards renewed world leadership, slowing them down and maybe even turning back the hands of time. He’s taking a page out of China’s playbook by citing national security concerns to prop up strategic industries, as well as initiating the usual anti-dumping reviews. While Western leaders will never publicly support him, they applaud behind the scenes.
Following his G-20 meeting with President Xi, Trump has postponed for 90 days a 25 percent tariff on $200 billion of Chinese imports, about 45 percent of their total imports into the U.S. China, in return, cut tariffs on American-made cars and agricultural goods.
During the 90 days, negotiators are to agree on Chinese protections against intellectual property theft and forced technology transfer to obtain market access, opening Chinese industries currently off-limits to Western companies and allowing majority foreign investment in foreign joint ventures. China cannot afford to give all this up.
Trump may therefore be in the driver’s seat for now. China runs a $375 billion annual trade surplus with the U.S. so it runs out of goods on which to retaliate first. Trump’s unpredictability is rattling Chinese consumer confidence and strong Chinese consumption is essential to continued economic growth.
The current tariff disputes will continue unabated. They are skirmishes in the long war for global leadership that depends on the U.S. outpacing Chinese innovation in key industries like high-end chips, artificial intelligence and life sciences. U.S. universities still outstrip China’s but for how long?
China’s imitators are rapidly becoming innovators.
John A. Quelch is dean of the University of Miami Business School and vice provost for executive education.