Similar and different – an occasional reflection

As huge economies with large and diverse populations, occupying about the same land area at about the same range of latitudes, China and the US have many similarities.  Similarities extend to many elements of culture and institutions, good and bad.  The similarities are often surprising; the differences confuse us, but may be a source of new perspectives. 


Domestic and foreign affairs in 2018 – Xi, CCP, DJT, GOP – Part 5 of 5


The Anarchic International Systemdestabilize the world

 Xi and Trump are destabilizing the world, and not only because of the tariff conflict.

As John Mearsheimer reminds us, there is no supra-arbiter of conflict between states.  Realism in international relations suggests that fundamental relations can only be based on domestic interests and an interpretation of what other states might do in their own interest.  Political disagreements with other states - nominally power equals as independent countries – are difficult to address without a hegemonic leading country. There can only be balancing of interests.  And there is no question that the world is looking at a rising China and declining US and wondering about great power conflicts and the Thucydides Trap and how hegemony will play out.


Chinese foreign relations

But balancing does not serve either the ego demands of Trump or the historical arrogance of China in foreign relations.  Historically, China has no allies on its borders, and does not engage in balancing.   Then as now, China has only debtor relations with what could be described as future tributary states.  Behind every Chinese SOE negotiating to do infrastructure, oil, or mineral deals in Africa, the middle East, south Asia or South America, one always sees the Chinese government as the ultimate negotiating partner.  The OBOR projects are a prime example, along with development projects in Africa.  To its credit, China is creating state-level infrastructure where there was none before.  China is also creating substantial local citizen mistrust everywhere there is an OBOR project or something like it – mistrust of China and of the local government that loaded them down with debt. The goodwill that should accompany the Chinese projects is limited to the leadership that benefitted directly.

In foreign relations, China wants to deal one-on-one, leader to leader, avoiding the complexities of legislatures, councils, experienced advisors, or ... the people.   In business, too, now as in the past, China wishes to do business leader to leader, or at worst, state to state, also avoiding the complexities due to public involvement or professional input.  In 2015, I was asked to produce an advisory paper for the Zhejiang Province School of Administration (CCP Party School) on how to address public participation issues in the OBOR projects.  I declined.  Such public participation in decision-making would never take place.  The environmental and political results are now visible from Sri Lanka to Zambia to Ecuador, and in pretty much every state in which China has done deals.

In international projects, China deals state to state, rather than interact with locals.  Xi has had many one-on-one meetings with leaders of states that hope to benefit from Chinese largesse.  There are always grandiose signings of billions of dollars of development deals as a result.  But these warm exchanges are instrumental only. The fundamental transaction is Chinese money or construction labor  for long term local influence, political or economic.  My African and middle eastern students in China see through the façade of international friendship pretty clearly.

In state-state relations, civility and diplomacy require suppression of strong public disagreement when leaders meet.  With Mr. Xi, one on one meetings are always cordial, lest participants lose face, and he makes no public pronouncements about outcomes.  Mr. Xi has people for that. Positions and policy pronouncements are reserved for spokesmen.

But Xi has bungled badly in foreign relations - from the diaoyudao-senkaku dispute to the nine-dotted-line South China Sea to its militarization, from the Doklam Pass border standoff with India, to angered local populations in African and the –stans, wherever China is doing deals for infrastructure and minerals and oil.  All this accomplished in five years time.  So much for “peaceful rise.”  Relations with the US are poor, and that is not only Trump’s doing.  Ely Ratner in Foreign Affairs -

Over the course of his first five-year term, Xi passed up repeated opportunities to avert rivalry with Washington. His increasingly revisionist and authoritarian turn has instead eliminated the possibility of a grand bargain between the United States and China. On most issues of consequence, there is simply no overlap between Xi’s vision for China’s rise and what the United States considers an acceptable future for Asia and the world beyond.

The One-Belt-One-Road projects were meant to put China at the forefront of international development, while at the same time creating dependent states in Asia and Africa.  These efforts have been somewhat successful.  But at the same time, OBOR projects are completely deaf to the community, environmental, or even public finance needs of the citizens of the countries so blessed with Chinese loans and construction workers.  National debt peonage is a typical result - see Seizure of the port of Mombasa  in Kenya, only the latest example.  According to this article, Zambia may soon lose its national electric grid and international airport to the same underhanded dealing.  There were reasons that the IMF or other international lenders were not doing these deals.


American foreign relations

To be fair, the Chinese can ruin the environment and finances in foreign countries, but they don’t support air strikes against civilians, or put children in concentration camps without their families, leaving that work to the Americans.  And Trump did not start the support for Saudi Arabia in its war in Yemen, but he certainly has not diminished it.  His support for Saudi following the murder of journalist Jamal Khashoggi with the rationale that the US derives a lot of revenue from arms sales, is a new low in executive immorality in an already deeply immoral war.  A couple of GOP senators have made unsupportive noises following the murder, but the GOP continues to support the dear leader.  The Senate moved to cut off aid for fighting in Yemen as a response.  Not much of a rebuke.

Trump dirtied the ground of China relations long before becoming president.  But like Xi, Trump wishes to deal only mano-a-mano with national leaders, avoiding the complexities of legislatures, councils, experienced advisors, or .. the people.    Everywhere he goes, he poisons the ground he walks on, before he enters the arena, by ridiculing leaders before he even engages with them.  In so doing, he has managed to destroy civil relations with the leader of just about every other nation, in addition to an incoherent sense of foreign policy.   His name is not on any foreign leader’s list of “who do you trust?”  Mr. Xi and Mr. Putin are undoubtedly happy, though.  There is that. Trump also has no use for senior government officials of foreign countries.  Negotiations with the “superior negotiator” are always king to king, emperor to emperor, ruler to ruler – to Trump’s disadvantage.  Stephen Walt - Trump's problem - both optics and incoherence

Only one example is needed, that of his response to meetings with Kim Jong Un, after referring to him publicly as “little rocket man” and threatening war –

"We had a really fantastic meeting, a lot of progress, really very positive," Trump said "I think better than anybody could have expected. Top of the line, really good. We’re going right now to a signing.” Going to the chapel

In this case, as in every other, senior American officials are left to pick up the debris and walk quickly off-stage.  And, true to form, little to nothing is accomplished.  It is all form over substance, gold-painted concrete block.

Lucian Pye notes that a dimension of civility critical to state-society relations, and critical to state-state relations, is the control of aggression and management of adversarial relationships.  Conflict, particularly public conflict, is anathema.  Harmony is the supreme value, promoted by government as a moral demand to acquiesce to the demands of the leader.  This harmony is not the harmony of Confucius, though – it is the harmony of obeisance to an occupying force or authoritarian power.  Superficial internal harmony requires only yes-men and those willing to bend truth to the wishes of authority (cf. inauguration crowd size and a hundred other made-up facts, and the dutiful mouthing of those canards by spokesmen and lackeys). Geremie Barme - to my mind the dean of all China scholars right now - refers to performative declamation, speech that is political theater. Barme and others are referring to speech acts in China, but they could be speaking as well of Trump and his spokesmen.  It has been suggested that many supporters of our current dear leader do not accept at face value his extreme pronouncements.  Such supporters behave as if they are part of a performance when attending a Trump rally.  Sort of performance art.


Economic development, China and US

Internationally, Xi is using massive state owned businesses to undertake infrastructure development in every corner of the globe, creating largely unsustainable debt for nations wherever they go, figuring that with debt comes political power, control of information, and occasional transfers of ownership to China (How China Got Sri Lanka to Cough Up a Port). The cynical hope is that the IMF, the western development bank, will bail out highly indebted poor countries (HIPC) as was started in 1996.  In any case, deference in politics and money – forms of tribute – will be paid to China.  The SOE competing on very large infrastructure and development projects can easily outbid private companies from other countries, given the blending of commercial bidding with government financing behind.  Many infrastructure projects are … let us say, loss leaders … for China international influence.  This is similar to the pattern of development within China.  See my recent post Cultural Economy.

Both Xi and Trump seek to “privatize” the economy, though each using a rather unusual concept.  Xi wants the private sector to take a larger role in the economy, although after six years in power, it is still unclear what that means.  Big SOE still dominate loan demand, and the government has cracked down on peer-to-peer lending and wealth management products.  Guo jin, min tui is what we see – the state advancing, the private sector retreating.   Every big “private” business in China, the ones whose name you know – Alibaba, Tencent, Baidu, Huawei, ZTE, Haier – has a CCP committee.  And from 2017, joint ventures with foreign businesses, and even  joint programs with foreign universities must now have a communist party overseer.  The foreign joint ventures must put CCP expenses into their budget and the chairman of the joint venture board must be identical with the CCP committee secretary.

Xi wants to open China to more private foreign investment in services - two European insurers may now be the first wholly foreign owned insurance companies in China. But while these approvals came five years earlier than expected, general progress on this financial opening up has been very slow, and in the current environment, I suspect many foreign companies are rethinking the prospect of huge profits in China.  Party committees can be perfectly innocuous, but if they decide they want to spend money, what can be done? If the Party committee directs the theft of internal IP, what can be done?  Sue them?

Oil demand works like religion or any ideology – it trumps any other economic policies.  Mr. Xi has almost completely destroyed the international goodwill of the Chinese development miracle, with territorial grabs in the South China Sea and other missteps.  But the South China Sea is the shipping venue for nearly all the oil that currently feeds China – and Japan as well, notably.   The OBOR projects will go a long way toward reducing dependency on a single shipping route to China.  One can see in OBOR the strategic intention to multiply oil supply lines into China.   But OBOR is creating its own local backlash as well, with poorly structured investment programs, excessive debt, poor relations with local people, and few or no jobs for local companies.  From an ambitious, Marshall-plan-like investment scheme that began with massive international goodwill,  Mr. Xi has snatched mistrust and an image more negative than not. 

In the US, Trump has failed to encourage much domestic business investment with the 2017 tax bill, given the tariffs, twitter pronouncements, threats to foreigners, Americans, and businesses, and general unease and distemper. The so-far invisible infrastructure plan was intended to transfer public money to private investors on infrastructure projects, defying logic, increasing costs, and with no hint of any reasonable justification.   Internationally, Trump’s words and deeds can only be encouraging American companies, like Harley Davidson, to further invest outside, and with regard to foreign companies investing in the US right now – would you do it?

Tom Friedman makes the point that American demand for oil fuels so much of the despicable behavior of Trump in the middle east and with Russia, recent US fracking production notwithstanding.  Trump’s statement on the killing of the journalist Jamal Khashoggi is illustrative - Trump's Black Friday Sale - Oil, Guns, and Morals

The international relations questions are part and parcel of US foreign policy, which seems to be in shambles. Barry Eichengreen, macroeconomist at Berkeley, discussed foreign policy at the Center on Capitalism and Society earlier this month. He cited six stated foreign policy objectives –

 (1)  enhance US national security; asking, 

does Canada pose a threat to US national security? Do tariffs on Canadian steel and aluminum enhance US national security? Will tariffs on cars imported from Europe or South Korea enhance US national security? 

 (2)  to extract useful concessions in our negotiations with NAFTA partners; asking, whether concessions from Canada and Mexico have done more to harm relations than the value of any minor changes to NAFTA were worth;

 (3)  strengthen the US trade and current account balance; noting that the current account balance is affected primarily by savings and investment, and tariffs will have negligible effect on either of those. In any case, tariffs will mostly cause diversions of supplies from some other country, rather than eliminate imports. If tariffs are applied broadly, then the value of the dollar will rise, making US exports more expensive and imports less so.

 (4)  render US manufacturing more competitive; noting that most tariffs are on intermediate inputs to manufacturing, which makes US manufacturing less competitive

 (5)  accelerate long term growth of US economy; commenting that to the extent the tariffs shift the mix of US manufacturing, the shift is to old-line businesses, such as steel, rather than high tech activities

 (6)  create more good jobs for Americans in manufacturing; commenting that the majority of the decline in American manufacturing employment is due to tech change, rather than export of jobs; tariffs will be good for American robots, not workers

Eichengreen listed some sources of failure of Trump and GOP foreign policy proposals - simple economic illiteracy; ignoring how economy has changed since 40 years ago; ignoring the existence of global supply chains, rather than the vertically integrated manufacturing companies of a hundred years ago.  By way of putting some blame on economists, he reminded that too many economists forgot the caveats of the Stolper-Samuelson theorem – globalization does not raise all boats equally.   In econ 101 terms, remember that trade can, not will, make both sides better off; and trade obviously does not affect all equally.

The one valid concern – IP theft – is barely addressed in the Trump tantrums.  A smart president would make IP theft a matter of international pressure.  Our trade allies – if we still have any – would certainly go along with such a concerted action.  But we don’t have the first team negotiating … anything right now.  Kevin Hassett, lead economic advisor to Trump is the author of the hysterical screed, Dow 36000, which came out in 1999, just a few months before the bursting of the bubble in 2000.

Xi and Trump share another feature as rulers – the benefit of lackadaisical oversight. For Xi, it is international; for Trump, it is domestic.  In Xi’s case, China has until recently retained world goodwill in becoming a responsible international leading partner.  In Trump’s case, despite demonstrated incompetence and immorality, he retained the silent cooperation of the Republican party.  For both Xi and Trump, it seems only in 2018 that pushback has achieved some salience.  Both are dealing with crises not only of their own making, but made in conjunction with each other.  Economies in China and the US are teetering from the trade war; stock markets in both are doing poorly. Xi and Trump are getting substantial negative reaction in world forums to arrogance - on OBOR missteps, loan deals (see  Educador dam project and Sri Lanka projects) and foreign policy generally, now including treatment of Uighurs and foreign spying and hacking, and Syria and Afghanistan and Yemen.  In Trump’s case, a couple of GOP congressmen have made weak rebuking remarks.  We can only hope this develops into deserved widespread GOP disgust.


Xi has been described as a Chinese nationalist; Trump has adopted the nationalist adjective for himself.  Mr. Xi is making many unforced errors in his push to make China great again, as it was under Kangxi emperor three hundred years ago.  Trump has made uncounted unforced errors in his drive to make American great again, as he imagines it was sixty years ago.  Mr. Xi changed the constitution, and will likely be with us past 2022.  We can only hope that our current dear leader does not decide to copy him in that instance as well.


Next:  Part 6 of 5 - Public Morality