Reese Erlich
In 2008, a 280-turbine wind farm in western China produces electricity, part of China's ambitious green energy program.
When I first reported from China in 1980, bicycles outnumbered cars on Beijing’s major streets, and the tallest building in town was a twenty-five-story hotel. I visited a small village that had one black-and-white TV, which everyone watched at night.
Today China’s major cities are jammed with modern factories, skyscrapers, and large public transportation networks. The Chinese government’s “socialist market economy” led to unprecedented prosperity, as well as massive corruption and intensified class divisions. China now has the world’s second-largest economy, after the United States.
The Trump Administration, as well as many high-ranking Democrats, see China as a vicious competitor. They claim the Chinese government unfairly subsidizes its domestic industries and steals U.S. intellectual property. So Trump launched a massive trade war.
I think he’s going to lose.
The administration imposed $34 billion in tariffs on Chinese products and threatened to order a total of $500 billion. China responded tit-for-tat, imposing its own tariffs aimed at regions full of Trump supporters. Agribusiness corporations from Trump country in the Midwest are taking big hits, with the prices for soybean futures seeing a 15 percent drop.
Trump has now proposed to pay $12 billion in government subsidies to farmers and ranchers negatively impacted by the trade war. But soybean losses this year alone are nearly $12 billion, according to Senator Ben Sasse, Republican of Nebraska.
Many farm-state Republicans have criticized the subsidies. “You have a terrible policy that sends farmers to the poorhouse, and then you put them on welfare,” said Senator Bob Corker, Republican of Tennessee. “It’s hard to believe that there isn’t an outright revolt right now in Congress.”
But some Trump supporters are willing to wait out the trade war if ultimately the United States can export more. I spoke with Jim Weston, co-owner of a small Los Angeles poultry company that was founded by my father in 1942. We’ve remained friends over the years, and I was surprised to learn that he supports Trump’s policies.
Trump claims the Chinese government unfairly subsidizes its domestic industries and steals U.S. intellectual property. So Trump launched a massive trade war. I think he’s going to lose.
“I thought we needed a businessman who will disrupt things,” Weston told me. He says U.S. chicken exports were banned in China after the Obama Administration slapped tariffs on Chinese steel pipe imports. The Trump Administration is now pressing China to allow poultry imports once again.
Weston notes that China’s stock market and currency have gone down since the trade war began. “We’re all hoping China will back down. If it doesn’t back down, it doesn't matter. We’ve done without them for 100 years.”
There’s a distinct possibility, however, that China won’t back down and the trade wars with China, Mexico, Canada, and Europe will contribute to a major recession. Trump has introduced uncertainty and instability into the U.S. economy, according to my friend David Kotz, a professor of economics at the University of Massachusetts Amherst and the author of The Rise and Fall of Neoliberal Capitalism.
“U.S. businesses are having a hard time figuring out the effect of the trade wars on them,” he told me. “Uncertainty can lead to postponing investments, which could plunge the economy into recession.”
During my first visit in 1980, China was an isolated country with few outside visitors and almost no foreign investment. Dozens of people would stop on the street to stare at me and the other Westerners. Even in a big city like Beijing, people hadn’t seen foreigners before.
Chinese officials realized the country would need outside help to modernize, and U.S., European and Japanese companies tried to impose the traditional modernization model on China. This involved outside companies bringing in machinery and technology, and Chinese workers assembling the parts. Then, the foreign corporations would sell the products and rake in the profits.
U.S. administrations demanded “free trade,” but in reality that meant freedom for U.S. corporations to sell to the Chinese market. In a rare admission of guilt, an analysis article in The New York Times explained, “The system of global free trade . . . was set up as a kind of permanent win for the United States. Openness exploits the sheer size and development of the American economy, so that its goods and services can dominate internationally.”
Unlike many developing countries, China didn't play by the old rules with foreign investors, taking steps to protect its sovereignty.
But China didn’t play by the old rules and took steps to protect its sovereignty. Foreign investors had to partner with Chinese companies and share their technology. Until a few months ago, foreigners could own no more than 49 percent of a company, making sure China controlled important economic decisions. Foreign corporations were never happy with the arrangement, but they acceded in order to have access to the vast Chinese market.
“Unlike in most developing countries, the U.S. government cannot exert its will over the Chinese government to allow U.S. business to do whatever it wants,” noted Kotz in a recent essay in Jacobin.
Initially, China focused on low-cost, low-tech industries. It manufactured shirts and plastic toys. Over time, however, it created vibrant automobile, computer, electronics, cell phone, and other modern industries.
In 2008, I visited a huge wind farm located in a vast desert of western China. Low mountains loomed in the distance and wind picked up considerable speed. A Chinese company had manufactured and installed 280 modern wind turbines. While the current U.S. administration denies the existence of man-made climate change, China is reaping the benefits of its green power industry.
China’s critics say it has succeeded because the government subsidized selected industries. So what? U.S. agribusiness receives billions in government subsidies. Many modern U.S. high-tech industries—from satellites to the Internet—were originally developed by the U.S. government and then handed over to private enterprise for free. U.S. manufacturers regularly receive massive tax breaks to locate to a particular state.
The key question should not be whether a government subsidizes certain industries, but who benefits from these subsidies: corporate fat cats or ordinary people?
In recent decades, many U.S. corporations have moved production to China, Indonesia, and other developing countries. They seek greater profits by paying lower wages and having access to local markets. Kotz, in our interview, says U.S. jobs in garment and textiles, for example, aren’t moving back to the United States because “U.S. wages won’t go down to third-world levels.”
But the U.S. government can promote policies that will provide good-paying blue and white collar jobs. Kotz, in his essay, proposes four components:
- A government jobs program to hire workers at a living wage.
- The promotion of a green economy using renewable energy, efficient mass transit, and energy-efficient buildings.
- Well-funded worker retraining and education for those displaced by jobs moving overseas.
- Raising the minimum wage to the level of a living wage.
Such policies have little chance of adoption anytime soon. It will take a lot of grassroots pressure, not to mention the defeat of the Republicans in November. But one thing is certain: Waging trade wars with China, the E.U., Canada, and Mexico will only make conditions worse for everybody.