What to make of the new U.S.-China trade deal?

That is the topic of my latest Bloomberg column, here is one excerpt:

The U.S. has established its seriousness as a counterweight to China, something lacking since it largely overlooked China’s various territorial encroachments in the 2010s. Whether in economics or foreign policy, China now can expect the U.S. to push back — a very different calculus. At a time when there is tension in North Korea, Hong Kong, Taiwan and the South China Sea, that is potentially a significant gain.

…Currently the U.S. is working hard to keep Huawei equipment out of the forthcoming 5G networks in many countries. (Imagine letting the KGB run the American phone network in say 1980, and you can see what is at stake here.) For that campaign to succeed, even partially, the U.S. needs some credible threats of punishment, such as withholding intelligence or even defense protection from allies. The course of the trade war has made those threats more plausible. If you are Germany, and you see that the U.S. has been willing to confront the economic and military power of China directly, you will think twice about letting Huawei into your network.

A third set of possible benefits relates to the internal power dynamics in the Chinese Communist Party. For all the talk of his growing power, Chinese President Xi Jinping has not been having a good year. The situation in Hong Kong remains volatile, the election in Taiwan did not go the way the Chinese leadership had hoped, and now the trade war with America has ended, or perhaps more accurately paused, in ways that could limit China’s future expansion and international leverage. This trade deal takes Xi down a notch, not only because it imposes a lot of requirements on China, such as buying American goods, but because it shows China is susceptible to foreign threats.

The U.S. still is keeping $360 billion of tariffs on Chinese goods, hardly a propitious sign that China made a great bargain. There is even speculation that China will not report the full deal to its citizens…

It is a common argument that being tough with other countries strengthens the hard-liners in those countries. But in China the hard-liners had been growing in power and influence anyway. This trade war, and the resulting first phase of a trade deal, shows there is a cost to China for being so hard-line.

Do read the whole thing, and note that we still should be agnostic.  Nonetheless extreme TDS is preventing people from thinking rationally about this one, and thus I view my column as a correction to most of what you are seeing in MSM.

Comments

Go home, Bruce! This isn't even the post you meant to comment on!

"If you are Germany, and you see that the U.S. has been willing to confront the economic and military power of China directly, you will think twice about letting Huawei into your network."

While this may be true in a limited sense, this doesn't appease german qualms with NSA surveillance, let alone smaller countries like Denmark and Holland. Without deepening transatlantic ties unilaterally from the american side, I do not see continental europe forgoing Huaweii to a significant extent.

I recall the President of France complaining about the "Anglo-Saxon powers" (in other words, the Five Eyes: USA, UK, Canada, Australia, NZ) listening in on his telephone calls back in the 1990s.

He was right.

Carl Cannon ran a four part series on Fox New in 2001 documenting how Israeli telecom billing firms linked to military intelligence appeared to have written in backdoors allowing them to extract your metadata. It was hot enough stuff for Fox to quickly shove it down the memory hole, but fortunately some people made recordings:

https://web.archive.org/web/20041230204022/http://www.informationclearinghouse.info/article7545.htm

Are Israelis Anglo-Saxons? I'm not seeing the logical progression in your comments.

What to think? I am in awe of our president accomplishing this against all odds and with the full effort of the Democrat party trying to stop him from MAGA.

Barring an economic collapse Trump is a shoo in for another term

Democrats are a mess August could be a nightmare for them

Well the Democrats are working for and praying for an economic collapse.

Yeah TC now in the bandwagon of Americans spreading fake news about Huawei. See this Quora thread for better researched positions, esp. the Mark Harrison answer:
https://www.quora.com/Why-is-the-U-S-struggling-to-convince-its-allies-like-Germany-to-ban-Huawei#

Yeah most of that Balding article is pretty weak stuff that would also apply to US companies. US companies will also comply with US government orders (seen vividly with US government sanctions, which even many foreign companies comply with), employ veterans, and have current US government employees positioned there, except they are called “analysts” instead of “party cells.” Even Balding’s article that Huawei is a national security threat gives the first example as Huawei dealing with Iran and NK. It doesn’t seem like we have any legitimate “national security” in stopping Iran and NK from having cell phones. This gets to the crux of the matter—American authoritarians don’t like Huawei because Huawei doesn’t follow the US government’s orders in lockstep like most other major global companies! The espionage thing is a total pretext, even if it were true, nearly all tech subjects consumers to some risk of privacy loss and consumers should be allowed to decide if they want to take that risk.

Do you actually think that any Chinese company would treat the Chinese government the way that Apple is now treating the US government? Public refusal to assist?

As someone who has closely covered China and Chinese companies for 25 years, I am absolutely certain that when the government asks companies to jump, they answer "how high?". And that is for companies that are mostly private, have shareholders, and trade on the stock exchanges. Companies like Huawei will have even more embedded party apparatus. US companies will abide by US law, but Chinese companies don't need law, they are constantly guided by state objectives. Imagine every Apple and Google employee being required by HR to spend hours each month studying "Donald Trump Thought", and for their annual reports to shareholders to detail their efforts in promoting the goals outlined in Donald Trump's "MAGA plan". And if any member of management is observed publicly criticising Donald Trump's person or ideas, they will be fired.
THAT, is the reality of major Chinese companies. And that is why China's economy operates in a fascist manner. Officially, companies may be kind of private, but in practice, they all operate under state influence to a greater or lesser degree, depending on their importance to the state.

So all Apple is asked is find a scientific method - "Hey here is this wand. US Law enforcement personnel: wave this and be happy forever with whatever you want. Others: eff off!"

That's all.

And why should other nation-states/governments get Apple products for their purposes? Or is Apple expected to produce things that will somehow magically figure the jurisdiction and behave appropriately?

So all Apple is asked is find a scientific method - "Hey here is this wand. US Law enforcement personnel: wave this and be happy forever with whatever you want. Others: eff off!"

That's all.

And why should other nation-states/governments get Apple products for their purposes? Or is Apple expected to produce things that will somehow magically figure the jurisdiction and behave appropriately?

This is the best the fat polymath can write about Huawei. This guy is *for sure* a party agent.

Get outta here, you dang 50 cent'er!

More proof, though none is needed, that Germany remains occupied by the US. The "freedom" touted by Yankee enthusiasts doesn't extend to the Germans making telecommunications deals with the Chinese or getting natural gas from the Russians.

The "freedom" touted by Yankee enthusiasts doesn't extend to... getting natural gas from the Russians."

Wow that's a remarkably dumb comment.

" about 98 percent of Germany’s primary energy consumption of mineral oil depended on imports in 2017. ... {Oil} Russia was by far the largest supplier in 2017, delivering 33.5 million tonnes"

" In July 2018, an economy ministry spokesperson put Russia’s share in German natural gas imports at “about 40 percent”."

"Do read the whole thing, and note that we still should be agnostic. Nonetheless extreme TDS is preventing people from thinking rationally about this one, and thus I view my column as a correction to most of what you are seeing in MSM."

First of all, we have to be agnostic since none of us knows the future, and we have to hope for the best. The problem is that this dance is a Rube Goldberg/ Kabuki Tango, making keeping score near impossible. As I've said, since Trump has declared the unilateral right to change anything in these agreements at any time, they are just wishful thinking. Plus, you call out TDS, when this entire confrontation is being argued for with ominous winks and nods. I agree with the people saying this is one of the worst explained confrontations we've been in. Boycott the country if it's really a matter of life and death, but don't piss on my back and tell me it's raining.

The only real question in such deals is whether Trump wants to be in or out of the tent being pissed on.

Hating the FBI - or at least trying to co-opt it - is a bipartisan game that has been played decade after decade since the Hoover era.

The remark about TDS is somewhat undeserved. The Guardian (for example) is hardly Trump's greatest admirer, and provides a similarly balanced assessment:
https://www.theguardian.com/world/2020/jan/16/regret-and-unhappiness-china-offers-muted-response-to-us-trade-deal

And in any event, I thought the whole point about trade agreements is that both sides benefit ?

I would say the TDS comment is warranted. Not to make Krugman the gold standard, but his column on the subject is hilariously bad. There were (around the time of Krugman's writing a few weeks ago) plenty of other MSM hot takes on how Trump is so dumb and such a bad negotiator and this deal is so bad.

More recently I feel Iran, the impeachment circus, and CNNs debate stupidity has left little room for boring things like trade agreements.

Krugman and all Trump haters better start figuring out how they will get to 2024 under a Trump administration

I was disappointed at passing over the economics of the deal. The remaining tariffs on Chinese goods look pretty bad for us. Or are they just bargaining chips for an eventual liberation? How much did China liberalize their inward investment policy (reduce their use of investment restrictions to force technology transfer)?

Well they did call it phase 1.

Nobody serious thinks that there will be a successful Phase 2. This is it.

Nobody serious thought that there would be a Phase 1. I’m prepared to admit that I was wrong. I’m willing to suspend judgment and wait for what’s next.

If there is a Phase 2, it will be another Nothing Burger like Phase 1.

I'm not sure that we can blame 30 years of China apologism/fatalism on TDS. We gave apologism a shot but, after 30 years, it now appears that the policy won't deliver the victory that Cold War containment was able to deliver in 40. So, we are going through a natural process of transitioning away from apologism while overcoming denial about its failures.

By what metric was the Cold War a "victory"? Is Putin's Russia much of an improvement over the late Soviet Union? And does your idea of "victory" take into account the 5-year life expectancy drop in 90s Russia, the rise of Central Asian dictators who are far more brutal than any post-Stalin Soviet leader, or the ethnic cleansing in the Balkans of the 90s? The end of the Cold War seemed to benefit only those Eastern European countries that joined the EU.

Every authoritarian government that transitioned into a stable democracy did so from a position of wealth and prosperity--whether South Korea, Taiwan, Chile, or Spain. Why would China be any different?

"Is Putin's Russia much of an improvement over the late Soviet Union?"

You really know nothing about life in Soviet Russia, do you? Yes, the average Russian is by an order of magnitude better off that he/she was in Soviet Russia.

"The end of the Cold War seemed to benefit only those Eastern European countries that joined the EU."

Even granting your premise, that's over 80 million people.

"Every authoritarian government that transitioned into a stable democracy did so from a position of wealth and prosperity--whether South Korea, Taiwan, Chile, or Spain. Why would China be any different?"

South Korea and Chile became democracies when their GDP per capitas were about $10,000 in today's dollars. Taiwan was at about $14,000 and Spain was at $20,000 which is where China will be in a couple of years.

I suspect you meant this for Zaua. His claim on that is patently wrong too - Eastern Europe was not wealthy in the late 80's and early 90's, and some parts were desperately poor (e.g. Romania, Bulgaria). Perhaps he meant peaceful transition and "no revolution", which is closer, although some of those transitions were the result of peaceful protests and virtually free of violence (Hungary, Czechoslovakia, Bulgaria).

His current thing seems to be a mix of:

1) Political and economic liberalism are meaningless or harmful for growth in poor countries, relative to "stability" and strong government. (It is not entirely clear why this would somehow stop being the case in rich countries, if you believed it...).

2) Change in political and economic values towards liberal values become inevitable and automatic once countries reach a certain GDP per capita. ("End of history" meets "Modernisation theory" reducing to the extreme)

So the thing to do is support whatever flavour of authoritarian government and economic policies are about until countries become rich and they will inevitably converge on political culture.

That's not totally an unusual point of view, but not usually by people who seem to have thought of themselves as libertarians, and even among those who think along these lines it would be unusual to apply it to states where government is by Marxist political parties.

I don't say this to single you out, but because it just seems worth noting as the way that lots of "China doves" will probably start to argue in the near future.

Russians are better off today than in the 80s, sure, because of rising oil prices and a generation of recovery. They definitely were not better off in the 90s than in the 80s. Every metric worsened, life expectancy fell by 5 years and GDP by more than any other country in modern times save Venezuela. Had the USSR stayed in place and the 90s been avoided, I think Russians would probably be better off today.

The residents of the former USSR themselves regard the collapse of the USSR as a bad thing by a wide margin. https://news.gallup.com/poll/166538/former-soviet-countries-harm-breakup.aspx

And Eastern Europe does have many people, but far more in the USSR itself became worse off. In the context of China, there is no “Eastern Europe” equivalent of countries China is dominating and preventing from liberalizing, so we would have all the harms to China itself without any of the benefits to the Poland equivalent.

"Had the USSR stayed in place" is too underdefined a counterfactual to ponder. If they had continued the USSR policies of Cold War arms race with the US and free goodies to their satellites, I propose they'd be much, much worse.

But this leads to an interesting contrast you bring up. Per your claim, in the 80's-90's, the breakup hurt people, but they were desperate to break off Russia, and Russia was happy (or at least not too unhappy) to let them go. Currently, people are better off (perhaps does not apply for Ukraine and some 'stans), but yearn for the "good old times". People really want to have their cake and eat it too.

"By what metric was the Cold War a "victory"? "

The enemy dissolved. Its navy was divided and rusted away, it withdrew its troops from Eastern Europe. The captive Baltic States and other Eastern European States gained independence. The danger of US/USSR nuclear confrontation disappeared, we brought home hundreds of thousands of troops. Other NATO states could effectively dissolve their militaries in safety, freeing funds for domestic uses. The EU could expand their common market, benefiting the people of the East.

Who cares if enemy civilians improved their standard of living?

"ethnic cleansing in the Balkans of the 90s?"

USSR never occupied Yugoslavia

+ 1 for Bob, a learned student (or perhaps professor?) of Post-Cold War history ...

"life expectancy fell by 5 years "

If you go by OWD, Russia falls by about 4 years from the zenith of 1987 (68.7) to 2002 (65).

However Russia also seems to have had no improvements in life expectancy on net between 1966 to 1987, and indeed the fluctuation in this period is slightly negative from 1966 to 1983.

Funnily enough, if you took the general trend from 1966 to 1983 and extrapolated to 2002, you'd see no difference from reality.

(source: https://ourworldindata.org/grapher/life-expectancy?time=1904..2015&country=ETH+IND+JPN+RUS+ZAF+KOR+GBR+OWID_WRL

On a separate note, the post-apartheid life expectancy drop in South Africa is probably 4-5x as large in magnitude. Still seems like they should've ended it.)

Putin's Russia is vastly better than the USSR. Putin is propping up one genocidal dictator actively killing his own population and a couple of low grade conflicts in Ukraine and the Caucuses.

The list of Soviet clients that killed over a a hundred thousand people included: North Korea, Cambodia, Afghanistan, Vietnam, Ethiopia, Mozambique, Angola, Bulgaria, Romania, Vietnam, Uganda, etc.

The US side winning the cold war benefited Africa and South East Asia more than the rest of the world combined. Frankly, the major massacres of Africa in the last 30 years, just continue this pattern. Chinese influence is very unhelpful for stability and preventing violence.

China would be different because it has long ago passed the level of economic development and output for South Korea, Taiwan, Chile, and Spain when they democratized. It also has been under authoritarian leadership longer than any of them, by decades in most cases.

"China would be different because it has long ago passed the level of economic development and output for South Korea, Taiwan, Chile, and Spain when they democratized."

Only South Korea and Chile.

Plamus,

Your claim that the average Russian is better off economicall by "an order of magnitude" than under USSR is simply ridiculous. Basically real per capita income has roughly doubled since then, not gone up tenfold, which is what "an order of magnitude" means. Furthermore, there has been a massive increase in inequality there so that people in rural areas have not seen anywhere near that doubling, although they are by and large somewhat better off economically. A large portion of the gain has gone to the largest cities, especially Moscow and St. Petersburg. There is clearly a massive increase in economic activity and real per capita income in Moscow in particular.

Can you provide links for per capita income? You claim a doubling since 1990 where as the World Bank indicates a 20% increase:

https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.KD?locations=RU

With respect to inequality in Russia, the World Bank states its Gini index was 24 in 1990, 46 in 1995, and 38 in 1996 and in 2015.

I initially looked at some other source (forget which), but googling just now I looked at Macrotrends. It has real per capita income in Russia in 1988 being around $4000 and in 2018 around 11,000, so almost a tripling rather than a doubling, but still way below "an order of magnitude" as Plamus so ignorantly claimed.

I'm not sure how Macrotrends gets those low numbers but you need to use PPP calculations, not exchange rates. Russia is at about $26,000 now, not $11,000.

Barkley, get down from the ivory tower once in a while. Real per capita income does not always tell a story. The average Russian monthly salary/wages, converted into less than $100 in the late 80 in the black market (not at the bogus official rate). Nowadays it's about $700, and fluctuates a lot. Also, back then this money bought you something if you waited in line - four hours, in the case of food, for years, in the case of a new vehicle.

Also, have you ever worked with statistics from behind the Iron Curtain from those times? I have. In one case, in 1996, when we inquired right there, in the National Institute of Statistics in Sofia, how a fishy looking number was derived, we got a rare honest answer: "I made it up. I get paid $30 a month - what do you expect?"

There is real income, and then there is "real" income. But you have Google, don't let me change your mind.

Actually, Plamus, you are arguing with the wrong person and are making a complete fool of yourself. I and my wife are very serious experts on Soviet and Russian data. You are completely out to lunch.

To Plamus,

How much time have you spent in Russia and when? If you have not been there, and not back when it was part of the USSR, then you really have no basis for your idiotic and ignorant remarks. You clearly have no idea how far in over your head you are with this silly nonsense.

Just to send a message to you, Plamus, I am the person who published in the Journal of Economic Behavior and Organization vy David levy and Sandra Peart the definitive paper on how Paul Samuelson overstated Soviet growth estimates in successive editions of his highly influential textbook, and I corrected their estimates in the early drafts of their widely cited paper. And they accepted my corrections without hesitation, and not just because I was the editor of the journal.

Todd,

Yes, but there is no consistent data source using the same methodology over time showing anything remotely near like an "order of magnitude" increase in real per capital income in Russia over this period. Like Plamus, you do not know what you are talking about.

Barkley,

Tell the World Bank that they don't know what they are talking about, not me.

Todd,

How big of an idiotic ignoramus are you? The World Bank and nobody else in the known uiverse accepts the ridiculous claim of Plamus that somehow current Russians, a large proportion of whom wish the old USSR was back, are ten times better off economically off now than they were when the USSR ceased to exist. Which is it for you: Are you just stupid are you ignorant? I take no prisoners, certainly not in this venue, and not on this topic.

I wasn't referring to what Plamus wrote but what you did with respect to Russia's GDP per capita being only $11,000. You need to use PPP measurements to get at a decent standard of living comparison.

Todd K,

In case you were unaware of the fact different sources provide different estimates of Russian GDP per capital. What you need to do is to look at any source and use it over time. They all pretty much show an increase in real per capita income on the order off 2 or 3 times over the last 30 years or so, not the ridiculous 10 times Plamus was claiming.

Now, I grant he sort of made an effort by comparing the black market value of Soviet wages back then with wages now. But that is fairly meaningless as the vast majority of what Soviet citizens bought was not imports for which that black market value was meaningful. I was there then and I can tell you that while people did not have a US style living standard they had a solid middle income liffestyle with nobody starving or homeless and with clothes on their backs, not designer ones, and fresh fruits and vegetables were often scarce, but it was not the starvation of the 1930s or late 1940s, and while the housing was not all that great by the 1980s almost nobody was living in the unpleasant communal apartments of earlier years.

As it is, outside of the larger cities, the living standards today are not alll that dramatically better than they were then, although they are better. This is one of the reasons so many are nostalgic about the former era, not just because Russia ruled its neighbors. Things were not all that bad.

What cold war victory?

60+ years, Castro's death, and Trump is still trying to overthrow Fidel so Trump can fail at gambling in Havana, the only thing he can possibly want in a Cuba "win".

Seriously, anything Cuba is Ok boomer ....

I remember the UN of Fidel, Khrushchev pounding his shoe, but I can barely figure out why Trump would give a damn about Cuba even as a boomer. Trump loves dictators because he wants to be one.

"largely overlooked China’s various territorial encroachments in the 2010s"

What was the death toll on this?

I know it's late, but the number I'm coming up with is zero. Which would make it not the most pressing problem if the 2010s.

At least three
https://www.reuters.com/article/us-southkorea-china-fishermen-idUSKCN1200DQ

From that, it doesn't sound much like war.

And in fact it doesn't make this list:

https://en.m.wikipedia.org/wiki/List_of_wars:_2003%E2%80%93present

Chinese fishermen killed by South Korean coast guards is hardly an example of Chinese territorial encroachment, even if they were fishing illegally. That’s like saying the Guatemalan migrants who died in US custody are examples of Guatemalan territorial encroachment.

The last example of Chinese territorial encroachment was the Ten Campaigns of the Qing Dynasty. Since then, China has only shrunk with the exception of the peaceful handover of Macau.

They definitely invaded Tibet in ~1950, and tried Vietnam in ~1978, but those put the 2010s in a pretty quiet contrast.

The lede that China is a territorial aggressor always seem a bit paranoiac to me for that reason.

There are legitimate criticisms of China's internal policies .. but perhaps they don't have the same "hook" for articles such as these. They call for more nuanced responses.

And it's not like we are keeping tariffs on until Chinese Mosques are rebuilt, anyway.

China is building islands with military bases off the coast of Vietnam, Philippines, Indonesia...

Seasteading?

Can you provide a link that shows all those Chinese bases off the coast of Vietnam, Indonesia and the Philippines?

China has been aggressive in restricting its neighbors’ activities in the South China Sea over the last year. Twice in that time—in July 2017 and again in March 2018—it strongarmed Vietnam, reportedly with the threat of force, into suspending two natural gas drilling projects on the country’s own continental shelf. With the Philippines, Beijing has pushed for joint oil and gas development in an area of the sea bed that an international court ruled belongs exclusively to Manila.
https://www.foreignaffairs.com/articles/china/2018-06-05/vanishing-borders-south-china-sea

NEW DELHI: China's attempts to lay claim over areas south of the India-China-Bhutan trijunction, as made obvious through Beijing's release of a map a few days ago, could worsen the ongoing stand-off in the Doklam area, indicating a fresh attempt by China to erode Bhutan's sovereignty and cramp India's strategic space.

Indian authorities see the release of a map as not just intended to take a maximalist position in the dispute, but also to obfuscate the main issue of PLA 's violation of ..

Read more at:
https://economictimes.indiatimes.com/news/defence/china-issues-map-to-play-victim-cover-plas-encroachment-bid/articleshow/59417894.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Both island groups are in the South China Sea where China has drawn a so-called "nine dash line" that lolls like a great tongue dipping down and across the sea. Beijing's claims clash with those of the Philippines, Vietnam, Malaysia and Brunei.

"The bottom line", says Alan Dupont, a professor of international security at NSW University, "is that China is terraforming its way to control of the South China Sea by creating artificial islands and then militarising them."

Dupont says "it's pretty clear-cut" that Beijing is seeking to "control the South China Sea and the eastern approaches to the Malacca Straits, which is the key choke point for global shipping given that 50 per cent of global trade goes through there."

In the US there is a growing realisation that American forbearance is failing.

"Washington needs a new grand strategy toward China that centres on balancing the rise of Chinese power rather than continuing to assist its ascendancy," writes a distinguished American strategist, Bob Blackwill, in a new report for the establishment Council on Foreign Relations.

The question is no longer whether China will forcibly take territory claimed by other nations. The question is what the rest of the world is going to do about it.
https://www.smh.com.au/opinion/world-reluctant-to-point-finger-at-chinas-encroachment-on-strategic-islands-20150504-ggtv12.html

It’s mood affiliation to the point of mental derangement.

If Trump is (fake) tough on China, then China is a paragon of virtue.

If Trump signs a fake trade deal, it’s not tough enough because it doesn’t impose sanctions due to literal concentration camps and climate change.

However, if he doesn’t sign a trade deal he’s screwing American consumers who are paying the tariff prices.

There’s no logical equilibrium because it’s Robin Hanson giving us all an extreme lesson in Politics Is Not About Policy.

Read about the Chinese claiming the South China Seas, and their building of islands so as to claim areas. The Philippines and Indonesia are disputing their claims.

Hundreds of miles offshore from any country, posturing, and as I say zero deaths.

Why exactly to you want me to look at the South China Sea as opposed to, say, Ukraine (13,000)?

They’re not hundreds of miles from any country.

But frankly, there’s no comparison. Ukraine is strategically irrelevant, and Russia barely registers as a strategic threat at all. They’re a corrupt gas station with a barely functioning army.

The SCS on the other hand is strategically critical. 1/3 of the worlds shipping passes through it, including to two of our critical security allies in Asia. It is now effectively militarized. China can theoretically cut off oil to Taiwan, South Korea, and Japan.

The two things are not remotely comparable.

Not a great week for this claim.

And of course China will be in a better position to defends its oil imports.

As I understand it, everything was relatively cool as long as countries claimed a 200 mile limit.

Via UNCLOS, the United Nations provided for countries with coastlines to submit claims to the UN's Commission on the Limits of the Continental Shelf (CLCS), (for their continental shelf to be extended beyond 200 nautical miles of their shores), by 13 May 2009. A total of 48 nations made full claims, and dozens more made preliminary submissions. Two of the submissions made to the CLCS addressed claims in the South China Sea (SCS) – one by Vietnam for a claim over the northern portion of the SCS (which included the Paracel Islands), and another jointly by Vietnam and Malaysia for a joint claim over a "defined area" in the middle of the SCS between the two countries, which included part of the Spratly Islands. Brunei made a preliminary submission notifying of its intention to claim a continental shelf beyond 200 nautical miles from its shores.

China (PRC) immediately issued protests over the two submissions and called on the United Nations not to consider them. It also issued a stern warning to countries not to claim the islands which it said were its sovereign territory.

I don't know, maybe someone had a simple mental model for the "continental shelf beyond 200 nautical miles from shore" and that it would just drop off. No conflicts.

Unfortunately the South China Sea is all shelf. This sets up a rather impossible goal that it be "evenly divided."

Note also that prior to 2009 most of the South China Sea would be considered open, high seas, without a claimant.

The Vietnamese/Malaysian claim would close that for the southern portion. Suddenly Chinese shipping would be going through other's territorial waters.

Dude look at a map of the area. Now look at the Chinese claim, it’s laughable. They want the entire area between Vietnam and the Philippines, stretching down to Malaysia.

This is one of the most strategically critical geographic areas of our century. And no, they’ve claimed it since 1949, but no one cared since it was an absurd claim.

Now they’re militarizing the key international shipping lane.

This isn’t A big deal, it’s The Big Deal. They’re smart enough to realize it.

China is never going to shut down the shipping lanes, because their economy (and regime) depends on trade. Also if they do it's a war, and just like most humans, which the Chinese definitely are, they don't want a war.

Find something more salient to be hysterical about.

The Chinese are using threats and intimidation to get their way on territorial disputes. See my posts above. They will continue such tactics until someone strong enough to push back, pushes back. They are claiming rights to oil fields in Vietnamese and Philippine territory. They are trying to cow their neighbors into submission without a shot fired

This trade battle is us pushing back. I'm not losing sleep over it, and neither should you.

If China can cow its neighbors and isolate America, that is a long term problem for America. Trump's trade policy toward China involves much more complex thinking than many of his critics, who seem shockingly ignorant of the issues or Chinese actions. Sort of like candidate Obama saying that worrying about Russia was silly but then he stood by as Russia killed 13,000 Ukraine citizens. Only to somehow blame Trump for that.

Trump's pushback on China is exactly what you wanted. Relax, we won't be fighting a hot war with China.

What? What did Russia do?

I’m not being hysterical, it’s simply the largest strategic challenge the US has faced since the fall of the USSR. We need to be realistic.

You’re not thinking on the margin. It’s not that China will shut down shipping absent a world war. It’s that they now have an additional real threat card to play that’s still short of a shooting war.

They’re not stupid, they know this gives them leverage. Against Taiwan, South Korea, Japan, Vietnam, Malaysia...

They have hardened sites to threaten shipping. Will they shoot? No, but they might detain all oil shipments to Taiwan for a week, and detain all exports from Taiwan for a week.

I agree, don’t be hysterical. Instead, think on the margin. In this case think on the margin in terms of leverage. Black and white thinking is unhelpful.

You have to ask yourself, why is it the people who won't read the Mueller Report who see China as our greatest threat?

I think I can categorize them properly. China is a potential threat. Russia just was right up in our elections.

And .. who is paying Rudy Giuliani?

Since tariffs will remain in place, in particular on imported intermediate goods, the trade war will continue to have a depressing effect on U.S. manufacturing output. But given Cowen's ambivalence toward manufacturing and enthusiasm for tech (how many more conversations with tech investors can he have before running out of tech investors to interview), I suppose this isn't very important. As for the reporting by MSM, with a few exceptions the MSM is treating this as a breakthrough for Trump and the U.S. economy and trade even though it's likely only a pause in the trade war and with the tariffs remaining in place and more being threatened. Indeed, the pause puts in place exactly the kind of economic/political policy Trump has pursued since being elected, one in which Trump alone chooses the winners and the losers based on his personal feelings and his own economic and political interests not a coherent economic strategy to benefit the interests of the U.S. He's already threatening Europe with more tariffs if Europe doesn't fall in line with Trump's policies in the middle east, no matter how misguided those policies may be.

Long term the manufacturing will come home to the US or move to other low-cost countries. Past conflicts with Japan over auto imports lead to Japanese plants in America. I have seen no trade policies that have been used to benefit Trump's economic interests. And to expect that trade policy will not have political interests in some way, shape, or form, is unrealistic. Indeed he could argue that he is more interested in the working class than the investment class with his policies. Do you want to argue that Europe is the home of free traders? Containing Iran to its borders while it collapses internally is the same policy that lead to the collapse of the old Soviet Union.

The multinationals and the globalists are not happy with the Trump Administration.

BlackRock has heavy investments in China, GM sells more cars in China than in the US, Apple makes their phones in China, Wal-Mart is an outlet for China, etc.

The multinationals will pour money into academia, think tanks, foundations, lobby groups, PR, trade associations, media and even directly into political campaigns.

The US Chamber of Commerce takes cues from Beijing, from what I can tell.

Why worry about Moscow influence in the US, when the multinationals, hitherto, were so much more successful in representing the Communist Party of China?

We will see what happens after 2020. The long knives are out for Trump. And Bernie.

If Trump gets a second term he'll oversee GM failing in China, if not yet again globally. GM can't ride ok boomer much longer in China.

As a European I'd urge my government to absolutely resist any bullying by the U.S on the matter of Huawei. We're not obsessed by the rise of China which could actually serve as a useful counterweight to American adventurism and unilateralism and a step towards a more balanced international system. Also the NSA, extrajudicial killings, weaponized interdependence etc .. The U.S. does not have the moral high ground.

You want the international system to be balanced by a nation that fails to recognize basic human rights, throws peaceful protestors off buildings, and incarcerates millions for the crime of being Muslim? The US has admitted to its mistakes but two wrongs don't make a right.

How China dealt with the Tamils and are dealing with their Muslim populations right now are the challenge to the tenets of the western alliance. What is happening in Hong Kong is an object lesson on what you can get away with. Iran, who has far more commercial ties to China than the US killed anywhere from 200 to 1200 people who were protesting a few weeks ago.

Every western government has groups who are a thorn in the sides of those in power. Northam in Virginia would love to have the power of the Chinese government to deal with those terrible people who insist on arming themselves. Trudeau praised the Chinese system for being able to get things done. The Chinese held up as paragons of progress and dynamism was due to their ability to run roughshod over anyone who got in the way.

And this is real. Very powerful people and institutions were brought low by voters in the UK with the Brexit vote. France has to deal with a restive and dangerous Muslim population, as well as the direction of government forced to change by a bunch of people wearing high visibility vests who got in the way. Poland had people marching in the streets recently over something.

It would be far simpler if you could get rid of all these pests and get on with your grandiose schemes, like the Chinese. The admiration for their system isn't a secret.

This is the issue and challenge of our time. The siren call of the authoritarian impulse is very attractive and in many ways the western institutions haven't responded well.

derek,

I think you mean "dealt with Uighurs." Tamils are in Sri Lanka and South India, not China.

As an European, I disagree. We lived 74 years of peace and prosperity (a uniquely long period of calm since the Roman Empire), we built the European Union, in large part thanks to American's protection.
If we want a counterweight to America's sometimes bad influence, we have to found it in ourselves. Let us just not use Instagram, not eat MacDo, not import MeToo and other shit.

That was a response to Antoine, of course.

No problem. We're going to let the Russians overrun you.

Spilling much American blood in France twice is enough, Antoinette. Keep your powder dry.

But keep up the good snark!

Love the idea of the *US* being concerned about *China's* "territorial encroachments". Time for an umpteenth US military base, and a few more carriers and nuclear submarines to patrol the area!
Also love TC jumping on the "TDS" bandwagon. Yes, there are a number of people overreacting in one direction toward Trump. But the fanatics who overreact in the other direction are the ones who got their way. He's president and he can do no wrong to *millions* of them. *That's* TDS

Someone will control shipping through the South China seas. This is an interesting situation, a binary choice is developing.

If there was a one country one vote on the issue, which way would Vietnam vote?

The main points of the deal are nothing-burgers. IP, currency manipulation, and finance are simply not worth the tariffs paid to get to this point. Never mind that they are also nonenforceable or simply non-issues.

The real issue here is technological dominance and to that end the Senate floated a bill last week for the investment of $1 billion into producing a 5G competitor to Huawei. The aim is admirable but the amount is laughable. We paid more in soybean farmer bailouts 30x over. We clearly need more resources here.

Alex's other post about the US starving for talent rings true. Nobody in the country knows how to go big on manufacturing wireless telecom equipment. We need to attract more electrical, radio, and industrial engineers from the global labor pool who can produce gear competitive with Huawei, Ericsson, and Nokia. Trump can do his song and dance on the trade deal all he wants but his experience in media and real estate and his lack of experience in tech and manufacturing means he can be safely ignored. No TDS is necessary.

Wow, the comments here are so unpredictable!

The US did get more concessions from China than vice versa, but it’s a bit disturbing that people see this as virtuous. China’s per capita income is about a sixth of the US’s. The US getting economic concessions from China is like one of those $100,000 Taco Bell managers getting economic concessions from his minimum wage workers.

Asking any worker, minimum wage or not, to not steal from you is reasonable.

A huge proportion of small US businesses, which sometimes develop into large businesses, are germinated by individuals that have gained their expertise in the employ of others, who have learned how to operate that business while being employed by a similar firm. While there are non-compete clauses in some employment contracts, nevertheless operating principles and techniques are commonly transferred to new firms by former employees, as is technology. Yet Yankees feel that along with walls to prevent the entry of undesirables, barriers are needed to prevent the escape of knowledge, which belongs, at least in a financial sense, to them exclusively.

Tell that to Uber
https://www.wired.com/story/uber-waymo-lawsuit-settlement/

...after this minimum wage workers talked openly about taking all managers jobs in a few years and only allowing them to be filled with Chinese.

I think this post is mistaking a piece of paper for a change in policy.

Take IP protection for example.

There's many a slip between the cup and the lip.

Kabuki theatre.

Measure results, not words.

Obama tried talking China to tears. Trump imposed tariffs, endured hardship on American firms, and ignored poorly informed critics.

OK, so Donald had a press conference and talked us to tears. The truth is, that with respect to IP, it is in the Chinese courts, and don't count on a change.

Wishful thinking on your part.

Obama does zero and that is OK with Bill. China aggressively pushes around others in the region, Obama ignores it and Bill is Ok with that. Trump takes great political risks to push back, and Bill says that is bad. Hard to call that thinking by Bill in any form

Every time TC says something about spooky, spooky China, my opinion of him gets lower.

I'm slightly shocked that Tyler thinks the $360 billion tariffs on Chinese imports are a sign that *China* didn't make a good bargain?! Taxing imports hurts people in the importing country, not in the exporting one, modulo long-run terms-of-trade effects.

If that were true, a military blockade (in the long run) wouldn't be an act of war.

First, a tax isn't the same thing as a blockade.
Second, of course a blockade hurts consumers in the country blocking out imports. The Napoleonic blockade against Great Britain backfired massively, because it led to widespread scarcity of goods in Europe!

Not sure how much TDS explains here. Most people get queasy over brinksmanship and negotiating generally. Trump is not one of those people. It doesn't mean he'll make great deals, but it's plausible. The whole thing makes most people, myself included, uncomfortable (can't we all just get along?), but I understand something about game theory, and I think Trump has an intuitive feel for such things, even if he never heard of John Nash.

I still suspect Sumner might be closer to the mark here (we end up with something not so different from where we started and Trump claims victory), but demonstrating American resolve may ultimately make an impression on China that produces longer-term benefits. Not clear.

Fair, though I might put emphasis on different syllables.

Now is a good time to negotiate with the US over any trade deal. Trump will declare that he got a great deal for the US in any agreement he has made, even if not true. So you throw the US a bone for him to declare victory and get Trump and his followers saying how masterful he is. This is just applied game theory that any economist should consider.

How come the US does not have a credible competitor to Huawei? Has there been an analysis of this, in this site or elsewhere? This is supposed to be a high tech sector where the US should at least have strong players.

I think we do (list here), but we worry that Huawei will undercut their price. Then it's up to the reader whether that undercutting is competitive advantage or Chinese national strategic effort.

I learned years ago, that this was more of a national security problem, where we could be hacked by Chinese interests. If I provide any more details, I'd have to...lol

Note today's Balding article on Huawei:

https://marginalrevolution.com/

On China, it seems Tyler has been talking too much to "national security people" (as he said he would here: https://marginalrevolution.com/marginalrevolution/2019/12/china-negotiating-fact-of-the-day.html) view foreign trade as a zero-sum game. As an economist, Tyler should know better.

When I see someone compare using Huawei telecoms equipment to having the KGB run their phone network, I know they have nothing intelligent to say on the subject.

I'm confused. You list all the ways that this deal is pretty meaningless and then say it's proof that it takes Xi down a notch. T

I'm not an expert on international trade, by any means, but it seems like Xi's goal all along was simply a return to the status quo and this seems to mostly be that. It would seem a win for China that they only had to wait for election your political calculus to get Trump to give up on meaningful change.

Sorry, Tyler, I think you are substantially overstating the gains from this. I have labeled this deal a "Nothing Burger" on my Econospeak post on it. I note that last evening commentators on Bloomberg Asia Watch said it would help stock markets around the world, but that the main thing it did was to "put a floor on the trade war," which is certainly less impressive than what you are claiming. And I see nothing in this that shows the US "pushing back" against Chinese military expansion in the South China Sea, nothing at all.

Regarding Huawei, there may be an argument for the US battling to halt its spread around the world. But the deal says nothing about it all, and I see it having no influence on whether or not say Germany adopts or does not Huawei. Probably more important would be tariff threats by US against Germany, such as apparently were used to get UK, France, and Germany to formally complain about Iranian violations of JCPOA.

Near as I can tell the only gains for US are a somewhat vague promise not to demand tech from US firms in China, some opening for banks and insurance firms, although I would not hold my breath about them getting too many gains, and then the big promise to buy $100 per more stuff from the US, a promise almost nobody thinks they will keep, although there probably will be some noticeable increase in their purchases of US goods, although if that ends up pushing the US dollar, well, oooops!

Clearly the biggest US winner will be agriculture, although it is unclear that after accounting for likely trade diversion even these gains will amount to all that much. Soybeans were badly hurt and will probably be restored. Some sectors being advertised to gain are beef and pork, the latter having problems in China now, and, oh I love this one, infant dairy formula. For sure Trump is interested in On Wisconsin!

The biggest gain is that we have an out. As usual Trump created a crisis and fake solved it.

Americans need to get used to the fact that their data will be owned by China. Yes, every email, text, call and weird porn site you visited is leverage.

They own you. Permanently. Most importantly the US government needs to switch to only hiring Mormons. Immediately. Any non Mormon is unfit to touch the government.

Thank you, Comrade.

Always blame the US, the liberal way.

Total victory for Xi and Trump, further consolidating their political power. Loss for opposition in both countries. Brilliant job, Xi baba.

This article is completely dishonest. Considering the OP earnings we can only conclude that dishonesty pays off.

This from Samuelson is a more incisive analysis of the deal
https://www.washingtonpost.com/opinions/2020/01/22/robert-samuelson-why-trump-loves-the-swamp/

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