Scott Sumner on China and trade and me, and why it really is all about geopolitics

The first bit is mine, the second is his commentary, link here:

[TC] This [China] is an issue that predates Trump, and he deserves some credit for doing something to help solve it.

[SS] Everything in that paragraph is completely correct–except the last portion of the final sentence, which is wrong.

Scott’s is a common view in free market circles, so it’s worth outlining why I see things differently.  Like it or not, the United States is the global hegemon.  In my view this is an overall positive, but for our purposes today let’s just take it as given.

If you are the global hegemon, and another country, largely hostile to your political values and geopolitical desires, engages in widespread subversion of your power and influence, you must in some way hit back.  Otherwise you will not be global hegemon for much longer.  And unlike India or the EU, China desires to build an international political and economic order which would destroy liberalism as we know it.  Imagine a world where autocracy is a much more widespread norm, the Xinjiang detentions and North Korean nuclear weapons are considered entirely appropriate behavior, Taiwan is a vassal state, and few Asian countries could allow their media to print criticism of the Chinese government, for fear of retaliation.  Institutions such as the WTO would persist only insofar as they created loopholes which gave China the benefits of membership without most of the obligations.

Did I mention that politics in Australia and New Zealand are subverted regularly and blatantly by Chinese influence and money?  Very likely the same is underway in the United States (and other countries) right now.

You can put aside trade practices altogether, and simply look at the extreme and still under-reported degree of espionage and spying conducted by China, aimed at major U.S. corporations.  It’s not quite an act of war, but it is not the classical model of trade either (“Mercantilism is bad…what’s wrong if they send us goods and we just send them back paper dollars?”).  China is violating U.S. laws on a massive scale, and yes, I am sorry to say, trade is our main way of “reaching” them and sending a message.

Some kind of push back is needed, and I find it striking how much Westerners — and this includes free market types — who have lived in China full-time tend to agree with this conclusion.  It is also striking how many market-oriented economists, usually from the outside, don’t talk much about this issue at all.

That said, I fully agree that Trump has a poor understanding of economics, he is incapable of building the proper alliances, the benefits from Trump’s actions are likely to be marginal, and perhaps the best case scenario is simply that his provocations cause the Chinese to think twice before proceeding further along their current path.

Scott’s comparisons are with the EU and India, neither real rivals of the United States nor intended subverters of the Western economic order.  His p.s. is the part of his post that comes closest to my view:

PS.  There may be a few national security issues with China where sanctions are appropriate. I’m no certainly expert on high-tech espionage.  But that’s only a tiny faction of the trade dispute, and if it is a problem is better addressed through sanctions targeted at specific high-tech companies like Huawei.

I would have written “PS: For China, everything is a national security issue.  It is neither stable nor desirable for the world’s other major power to take exactly the opposite view.”