The Trade War with China

By Cesar Fernando Lumba

We Americans, especially our government officials, have our heads in the sand when it comes to the raging trade war with China. How could we be at war with China, we ask, when China is one of our biggest trading partners, if not already the biggest?

Yes, the trade war doesn’t seem to make sense on the surface. If we look deeper, however, we realize that the trade war is in fact ongoing and intensifying.

First, look at what happened to our manufacturing. Before China awoke from its deep 500-year slumber, the U.S. was the acknowledged premier manufacturing country in the world – the biggest since the beginning of time.

Now, with hundreds of thousands of our factories having closed down and our manufacturing transferred to China over the past two to three decades, we have slipped to second place. China is the premier manufacturing country.  What Japan and South Korea could not do, China has done.  China has managed to destroy our manufacturing base and rebuild its own – at our expense, and at the expense of Europe, Canada, Japan and Australia.

Strategically, the single most important sector of the American economy just happens to be manufacturing. Recall that in the Second World War, our superiority in manufacturing over Germany and Japan was decisive in winning that war. Now, because China has a bigger manufacturing base, it will have a distinct advantage over us should a military conflict break out between our two countries.

Second, China is dictating the terms of trade between them and us. They tell us what we can and cannot do in their country, and they tell us what they can do in our country.  That is because they have a hybrid economy. On the export side, China is a free economy.  On the import side, it is a managed economy, managed by a communist regime that is wily, cunning and focused on eventual world domination.  Sorry if my plain speak offends anyone, but that is the truth. Because of their hybrid nature, they have a huge advantage over us in the trade war.  And this shows every year and has shown every year for more than two decades now, in our balance of trade..

The balance of trade is the indicator of who is winning the trade war – the war that decides who exports more and who exports less.  And that balance of trade has been won by China for many, many years.

In 2012, the balance of trade was 315 billion dollars in favor of China; the following year it was up at 319 billion.  A trade imbalance as large as that is not trade, it is a war with a spectacular winner and a spectacular loser.  Just focus on the winner, friends, don’t even look at the loser.

Third, China has laid claim to 90% of the South China Sea, which on the face of it is a direct challenge to the United States’ ability to navigate the waters in that region of the world.  China is on pace to be able to declare no-fly zones over the South China Sea and demand that all foreign ships must get permission from China in order to sail in that sea, which is becoming the single, most important body of water in the world.  If China wins – and it’s winning – the U.S. will be on the outside looking in in that region of the world.

China is preparing to build a base in the Spratly islands by enlarging the islands that it controls through land reclamation. Pretty soon there will be an airbase that can be militarized. The Spratlys just happen to be close to the Philippines, Malaysia, Vietnam, Indonesia and Taiwan. The potential military threat against those countries is growing, threatening to pull the U.S. into a major confrontation with China in the near future, a confrontation that the U.S. can easily lose because of an overwhelming Chinese presence in the area.

With China dictating to the U.S. in trade, it is also seeking to dictate to us militarily in that part of the world.

We all know that the U.S. owes more than $1 trillion to China through China’s ownership of our treasuries. All that China has to do is call the treasuries and the U.S. economy would go into a tailspin.  China, therefore, has a sword of Damocles over our heads.

Is all lost?  Are we destined to be China’s punching bag in the future?  Are we destined to become the old punch-drunk has-been that China will beat up on?

We cannot and should not think that all is lost. We can fight back by reversing the process that has allowed China to surpass us in manufacturing and which has resulted in the U.S. losing the trade war, which in turn has caused us to lose the financial war, which in turn has caused us to be at a huge disadvantage in the looming military conflict in the Asian-Pacific region.

We must start by bringing some of our manufacturing back to America. Let us build things again.  So what if the products will be more expensive than the Chinese ones?  We know that the quality will be better than the quality of Chinese goods, which break down easily.  Remember the refrigerators, the stereos, the TVs in our bygone era, when those things were built in the U.S.?  Those things lasted a long time.  Nowadays, because they are built in China we have to buy extended warranty contracts because the Chinese products break down so easily.

Finally, let us not be afraid of higher prices.  With Americans working in factories again, more Americans will be making more money and they will be able to afford higher prices.  Recall that in the 1950s, 1960s and 1970s, most of our American-made products were expensive yet we were able to afford them.  Why?  Because we had good, solid manufacturing jobs, jobs that paid us decent wages, not WalMart and McDonalds type jobs.