Look who’s ready to fight Trump’s trade war now

March 9, 2019

Is Donald Trump starting to look like a softie on the trade conflict with China compared to sections of the U.S. business and political elite? Dorian Bon explains the background.

WHEN DONALD Trump launched his trade war on China last spring, he had to drag the U.S. political and business establishment along with him.

Most elected officials in both parties and a large majority of corporate execs cringed at the thought of a protracted trade war that would disturb the ordinary flow of profits and investments between the world’s two largest economies.

Now, as Trump and his team seek a negotiated settlement with Chinese President Xi Jinping, Trump finds himself in the opposite position — facing bipartisan pressures not to back down or compromise in any U.S.-China trade deal.

Even Trump’s own trade negotiator Bob Lighthizer — who helped bend Japanese auto companies to the will of the Reagan administration in the mid-1980s — has grown frustrated with the president, wanting him to take a harder line on Chinese telecom giant Huawei and keep the threat of further tariff increases on the table.

Donald Trump and Xi Jinping meet during the 2018 G20 Summit in Buenos Aires
Donald Trump and Xi Jinping meet during the 2018 G20 Summit in Buenos Aires

The context for this strange turnabout is the new common sense across the political spectrum: the idea that China poses a threat to U.S. jobs, security and technological dominance.

Trump’s advisers fully expect the eventual Democratic nominee in 2020 to try to outflank him to the right on China and the defense of U.S. manufacturing. And the political competition over anti-Chinese toughness could very well throw a wrench into the continuing bilateral negotiations with China.

Even big American capital — which, outside of the steel industry, has been almost universally opposed to Trump’s tariffs — is warming to the administration’s more aggressive stance toward China.

Most U.S. CEOs are still hostile to the use of tariffs as an economic weapon, especially against their North American and European trading partners. But they also have serious concerns about the rapid development of Chinese high-tech manufacturing, the transfer — by contract and by coercion — of U.S. technologies to Chinese firms, and investment restrictions for U.S. companies in China.

Somewhat to their surprise, Corporate America sees Trump forcing Xi’s hand on these issues more effectively than Barack Obama or George W. Bush before him.

Josh Bolten, president of the Business Roundtable — an association of the U.S.’s largest companies, collectively worth $8 trillion and employing 15 million workers — put it this way during a recent interview with Washington trade experts Scott Miller and Bill Reinsch on their podcast The Trade Guys:

The CEOs of the Business Roundtable have found themselves in agreement...with the Trump administration on most of the objectives of the very aggressive posture that the administration has taken with respect to China.

As both of you also know, that is an evolution...of the business community’s position. The Roundtable doesn’t speak for the whole business community, but I think there has been an evolution throughout the business community on this. And that is that the posture of waiting for democratic, market-oriented capitalism gravity to have its effect on the Chinese has proven not to be a viable approach.

Bolten went on to lament the defeat of the Trans-Pacific Partnership (TPP) — a major Obama-era economic agreement that Trump opposed on the campaign trail and terminated once he took office — as a missed opportunity to contain China’s rise and secure crucial markets where U.S. and Chinese companies are in direct competition.

Bolten and most of the U.S. ruling class see — somewhat in contrast to Trump — the strengthening of a multilateral alliance of Western and pro-Western countries as the best strategy to counter the threat of a growing Chinese rival.

But Bolten is unambiguous and Trump-sounding about the goal of the strategy. “All of our interests are actually consistent with each other in confronting the threat that an economically hegemonic China poses for the entire world,” he explained.

HEARING A leading representative of the American corporate elite talk about the threat of Chinese economic hegemony on “the entire world” is alarming to say the least — and demonstrates that Trump doesn’t have a monopoly on anti-China discourse by any stretch of the imagination.

That isn’t to underplay the serious disagreements over strategy between the Trump administration and most of the U.S. business world.

Many corporate leaders are concerned about the fact that Trump is simultaneously in tense trade negotiations with the European Union and brandishing the threat of tariffs on car imports (primarily impacting Germany and Japan), a move which virtually every single American auto-company angrily opposes.

And they appear to be signing on only half-heartedly to Trump’s renegotiated NAFTA, now dubbed the U.S.-Mexico-Canada Agreement — which contains some attractive updates on digital trade (mostly lifted from the TPP, ironically enough), but is broadly seen as a step backwards for corporate profits and preferable only to a collapse of NAFTA altogether.

These raise question for U.S. corporate rulers: If Trump is so concerned with the Chinese threat, why doesn’t he focus his fire in that direction, instead of toward allies?

This will be the line of attack against Trump from much of the political and corporate establishment, including those who are Democrats or support them, moving forward into the new election cycle.

To Trump and his team, however, trade disputes and negotiations with Canada, Mexico, the European Union, Japan and China are all so many elements of a larger plan to keep as much of global industry as possible within the continental U.S.

For the largest American companies — which have positioned themselves at the technological peak of a globalized network of supply chains, markets and investments — Trump’s economic nationalism poses an opportunity to challenge China, but new problems in relation to the rest of the world.

The biggest CEOs and industry lobbies are still figuring out a response.

THE REVERBERATIONS of the U.S.-China trade war have been felt across the corporate world, perhaps nowhere more starkly than in telecommunications.

As geopolitical tensions between the U.S. and China have deepened, telecom companies and state governments have been preparing for the highly anticipated rollout of 5G cellular networks. 5G, or fifth generation, technology is expected to speed up data flows (and increase data volumes) across cell phone and other digital communication systems.

Many analysts predict the degree of change brought on by 5G will be similar to that of the 3G and 4G evolutions, which underpinned the smartphone boom. This time around, however, most eyes are trained on what the new networks will mean for digitized and computerized manufacturing, commerce and transportation more broadly.

For the leadership of both main U.S. political parties, the excitement around 5G has been muted by hostility toward the world’s largest telecom equipment supplier (and second largest cell phone seller), the Chinese corporation Huawei.

With $7.55 billion in profits in 2017 and the most cost-competitive telecom equipment in the world, Huawei has been widely predicted to be one of the main beneficiaries of the 5G expansion.

But Congress has been on an offensive against the company since 2012, and the Trump administration has escalated the attacks.

Trump has gone on a global campaign with broad bipartisan support to persuade allied states to ban Huawei entirely from their domestic markets. He has also planned to issue an executive order to bar the company from the U.S. economy as well, though he seems to have now turned this threat into a bargaining chip in his dealmaking with Xi and China.

The justification for bans is that Huawei could use its access to the cellular networks it builds overseas to spy on foreign governments. The extraordinary hypocrisy of this claim coming from the main surveillance power in world history has not been lost on most people following the debate.

Meanwhile, Trump instructed the Canadian government to arrest and extradite Huawei’s Chief Financial Officer Meng Wanzhou, daughter of Huawei founder and President Ren Zhengfei, during a routine visit to Vancouver. The charges against Wanzhou stemmed from alleged violations of U.S. sanctions on Iran. Wanzhou’s extradition hearing began this week and could drag on for months.

Wanzhou’s arrest could also be used as a bargaining chip by Trump, though most of Trump’s staff is reticent to bring a separate legal proceeding into a trade agreement for fear of discrediting the courts.

PART OF what is so striking about the case of Huawei and 5G is how it flatly contradicts the whole logic of the current neoliberal world order of free markets and free trade.

According to the propaganda, under neoliberalism, any buyer should be allowed to make their purchases from any company that offers the best products for the lowest prices. For many buyers, including national governments, that company is clearly Huawei.

Now, however, the U.S. state is attempting to restrict the field and eliminate the Chinese option from the market. In other words, what we’re witnessing in this crucial sector of the global economy is an open attempt by the world’s most powerful state to create trade blocs in telecommunications that shut out one of China’s most prominent companies.

While both Republicans and Democrats in Congress are rallying behind the attacks on Huawei, the response from the U.S. and European information technology industries has been much more conflicted.

The main lobby for telecom and technology companies in the U.S., the Information Technology Industry Council, has been clamoring for Trump to strike a deal with Xi and drop the tariffs. Chuck Robbins, CEO of the largest American telecom equipment maker, Cisco Systems, insists Trump’s tariffs and sanctions are unnecessary.

“We don’t need anything else to beat these guys or to beat any of our competition in the marketplace,” Robbins said in February. Huawei competitors Ericsson and Nokia — multinational companies based in Sweden and Finland, respectively — have claimed that they’re ready to supply Europe’s 5G infrastructures in the event of a Huawei ban, indicating they may have some sympathy with Trump’s efforts.

AS OF now, the Trump administration’s campaign to block Huawei from the world’s markets has had mixed results. Both British and German intelligence agencies are leaning toward accepting Huawei as a legitimate business partner, as is the French Senate.

In the Czech Republic, a conflict has emerged pitting President Miloš Zeman, who wants to strengthen ties with China, and the Czech cybersecurity agency, which has labeled Huawei a threat to national security. Debates on the same topic are also underway in Italy and Canada.

Australia’s Foreign Minister Marise Payne, staking out the most extreme anti-Huawei position, has fully embraced Trump’s ban and vowed to maintain it, even if Trump himself backs away from his current position. New Zealand’s Prime Minister Jacinda Ardern, on other the hand, rejected the idea of a blanket ban.

Crucially, Narendra Modi’s right-wing government in India has so far opposed the idea of banning Huawei.

Despite ongoing China-India tensions, the offer of cheap telecommunications equipment to expand India’s cellular infrastructure seems too attractive for Modi and his business allies to decline. The fact that the Trump administration is simultaneously weighing raising tariffs and restrictions on Indian products is certainly not helping to convince Modi to further antagonize Beijing.

However unsuccessful the Trump White House has been in forcing the hand of other states, the president and congressional leaders are well aware of the economic leverage they have against key Chinese companies.

Last year, the Trump administration brought China’s second telecom corporation, ZTE, to the brink of collapse when he issued a temporary ban on trade between the company and American suppliers. ZTE is totally dependent on U.S. imports of advanced communications equipment and might have been destroyed if Trump had not chosen to lift the ban before entering negotiations with Xi.

Similar bans by the Trump administration have nearly brought down the Chinese state-owned chipmaking company Fujian Jinhua, which has announced it will have to cease production altogether in March if it cannot buy more imports of crucial American equipment.

WITH ALL of these variables at play, the next year in the U.S.-China economic relationship is impossible to predict.

The financial costs of unraveling one of the largest state-to-state commercial relationships in modern history may prove too high for either side to escalate the 2018-19 trade conflict any further, especially as the global economy passes the high point of the business cycle and heads toward another likely recession.

The two heads of state plan to meet at the end of March, possibly at Trump’s Mar-a-Lago resort in Florida, to sign a trade agreement.

For Trump to sell the deal to an increasingly hawkish Congress, he will have to demonstrate “progress” on the goals he articulated at the outset of the trade war: more Chinese purchases of American products, stronger intellectual property safeguards for U.S. corporations and less state subsidies for Chinese companies. It remains to be seen whether Trump will decide to incorporate a compromise on Huawei into the deal.

Whatever the outcome of this round of negotiations — and it is still possible that they could fall apart — what is unfolding today is undoubtedly just the first act in a long and tempestuous drama.

China is clearly a growing geopolitical rival to the U.S., and Chinese corporations are quickly developing the capacity to compete with their U.S. counterparts on a global scale in the most advanced areas of high-tech manufacturing.

This means that many more economic confrontations between the two states are inevitable. And as politicians on both sides of the aisle have made abundantly clear, Trump will not be the last president to stoke tensions with China.

Then there is the question of how the perspectives of the largest American businesses will change as this conflict develops.

Josh Bolten, the Business Roundtable president, claims that the CEOs he represents have been through an “evolution” in their views that brings them closer to Trump’s “aggressive posture” toward China. Yet at the same time, there continues to be near-universal opposition to tariffs and trade wars within these elite strata.

So what kind of “aggressive posture” do these leading American capitalists hope to adopt? With more money and power concentrated in their hands than any other ruling class in the world, the stance that these elites take toward U.S.-China relations will be very important.

If the American 1 Percent drifts any further toward the rising economic nationalism articulated by their political representatives in Washington, future flare-ups between the two countries may be a great deal worse.

Further Reading

From the archives