Narration: The U.S.-China trade war has hit China hard, but how hard?
Wen Zhao: If the trade war lasts only one or two years, the Chinese leaders may have been prepared for that. But a prolonged trade war means irreparable damage to China’s economy.
Narration: China brought the U.S. to the negotiation table before. What has the U.S. learned from past experience?
Peter Navarro: The Chinese official agreed to no militarization of the South China Sea. Within two years, those artificial islands were armed to the teeth.
Narration: What is the Trump administration’s China strategy?
John Lenczowski: I believe that the president wants to restore reciprocity to the relationship. I don’t think that he wants to have a cold war.
Narration: But something fundamentally changed.
Simone Gao: I don’t know if Kissinger’s view has changed?
John Lenczowski: No. He’s too invested in all of that.
Simone Gao: But he doesn’t have nearly as much power over this administration as over the previous administration?
John Lenczowski: No.
Title: Has Trump Undone Communist China More than We Realize?
Simone Gao: Welcome to Zooming In. I’m Simone Gao. Now the midterms are over. Republicans and Democrats both got something, but the country is as divided as ever. However, amid this division, one possible unifying factor for the country is surfacing, namely, China. Democrats and Republicans have reached the consensus that during the past 40 years, the China engagement policy have not worked. China has not become a free and democratic society because of economic development. And the Chinese Communist regime fundamentally remains as a rival, not a friend, to the United States. Under this premise, the trade war within China does not fall within the frame of the debate between free trade and economic nationalism. It’s something pertaining to national security and erosion of the American way of life. American people have started to realize these things. But what they haven’t realized is that China is facing a challenge it hasn’t faced in forty years. Honestly, Communist leaders for the first time don’t know what to do about it. The trade war has forced the Communist regime into a corner where they potentially have to change the way they run their economy, and frankly, the way they run their country if they are lucky enough to stay in power. How is this so? And what does it mean to America? We’ll explore these questions in this episode of Zooming In.
Part 1: Trade War Has Hit China Hard
Narration: On November 1st, President Trump tweeted, “Just had a long and very good conversation with President Xi Jinping of China. We talked about many subjects, with a heavy emphasis on Trade. Those discussions are moving along nicely with meetings being scheduled at the G-20 in Argentina. Also had good discussion on North Korea!”
Narration: It is unclear which side initiated the phone call. According to Bloomberg, the U.S. plans to announce tariffs on all remaining Chinese imports by December if talks next month between presidents Donald Trump and Xi Jinping fail to ease the trade war.
Narration: The Trump administration already imposed a punitive 25 percent tariffs on $16 billion of Chinese goods and 10 percent tariffs on $200 billion of Chinese goods in August and September this year.
Narration: The speculation is that China has been hit much harder by the trade war. It’s forced Xi Jinping to soften his rhetoric.
Narration: Manufacturers and exporters have felt the impact. In July, China’s biggest soybean producer, Sunrise Group, filed bankruptcy and let 6000 employees go. Following suit, a major tire manufacturer, Yong Tai, declared bankruptcy in August.
Narration: China’s official “People’s Court” predicts that, if the United States imposes tariffs on all Chinese goods, many Chinese companies will go bankrupt.
Narration: China’s macroeconomic outlook is also depressing. Since January of this year, China’s stock market has fallen by a quarter. Real estate sales experienced a fast contraction across the country since last summer. The sales of homes in Shenzhen, China’s southern crown jewel, fell by 40 percent in September. Consumer prices have risen 2.5 percent at the same time compared to last year. The official unemployment rate is 5.1 percent, but overseas economist He Qinglian claims it’s at 22 percent.
Narration: On top of that is China’s massive debt which is estimated at 300 percent of its gross domestic product. Local governments, their various financing platforms, state-owned enterprises, and private sectors are all loaded with heavy debt.
Simone Gao: Can China fight a prolonged trade war? Here is my discussion with Mr. Wen Zhao, NTD TV’s senior political commentator.
Simone Gao: What is China’s economic situation really like? Can it tide China over in the ongoing trade war?
Wen Zhao: If the trade war lasts only one or two years, Chinese leaders may have been prepared for that. But a prolonged trade war means irreparable damage to China’s economy. Once export-oriented businesses close down in great numbers and unemployment flares up, China’s economy and social security will worsen drastically. Since China lacks strong enough domestic consumption to offset its huge exports to the U.S., any possible recession will remain long and hard to get over. Also, the longer war is more than a U.S.-China issue, which will further global industry transfer. More businesses—including local ones—will prefer less investment in China, bypass tariffs, and transfer capacity elsewhere. Once these firms target the American market, they’ll consider industry transfer against tariff wars. If the gap widens while the U.S. market thrives and China’s economy slows down, a stubborn trend of industry transfer will be seen worldwide. Even if the U.S.-China tensions are eased, China’s own problems alone would cause manufacturing capacity transfer and capital outflow—the war only quickens the process, hitting Chinese jobs harder. In late October the Chinese Communist Party (CCP) set goals at securing jobs, foreign capital, and trade at the politburo meeting—it’s anxious to relax tensions and avoid breaking down too soon. A likely result will be that the CCP would make hollow concessions, still, a long way to go before a true deal is stricken.
Narration: Although China can’t afford a prolonged trade war, it remains unclear if Xi Jinping is willing to make real concessions to the U.S. The Trump administration is aware of this and they understand why. On Oct. 9, at the Center for Strategic and International Studies, Dr. Peter Navarro, assistant to the President and Director of Trade and Industrial Policy said this:
Peter Navarro: We went on a trip, yeah a road trip; let’s go to Beijing and negotiate with the Chinese. So we sit across the table with the—with the Chinese team, right, and it’s like we put our demands down. And they were, like, tough demands; there were a long list of demands, like all this structural stuff. It kind of looked like the chart here, all right? And so what do we hear? Well, we don’t engage in cybertheft; we’re the biggest victim of cybertheft. Oh, we don’t—we don’t force technology transfer; that’s not our—I mean, how do you—how do you have a deal with somebody if they won’t even acknowledge your concern? I mean, it’s Alice in Wonderland. But here’s the other—here’s another problem. I mean, think about this: What’s the difference between the Soviet Union and the Chinese model? They steal stuff. They take the technology. And I believe that there’s deep concern in China that if they make the kind of structural reforms that are necessary for them to be reasonable, fair, and responsible citizens of the global trading system, they won’t be able to compete.
Narration: Navarro said the biggest problem between the two countries is trust.
Peter Navarro: The game that China has played—and they played people in the Bush administration like a violin—is to do the tap dance of economic dialogue. That’s all they want to do. They want to get us to the bargaining table, sound reasonable, and talk their way while they keep having their way with us. And this is—this is—I mean, look, here’s all you need to know when you think about the prospect of a deal, OK? We had a high-ranking member of the Chinese government agree with Barack Obama on two things back in 2015. Two things, OK? The Chinese official agreed to no militarization of the South China Sea. Within two years those artificial islands were armed to the teeth. The second thing that official agreed to was to stop hacking American businesses. Yeah, well, that lasted about six months, and now the U.S. government will tell you unequivocally that those hacks are back up, they’re serious, and they’re coming to get us.
Narration: If this is what the Trump administration is concerned about, they won’t be eased by the Beijing delegate who serves as a predecessor to the G20 summit between Trump and Xi to sort things out. On the same day, at the same time when Dr. Navarro made these statements, less than one mile away, Secretary of State Mike Pompeo, Secretary of Defense James Mattis, and their Chinese counterparts Yang Jiechi and Wei Fenghe held a joint conference. The Chinese delegate rebutted every criticism Secretary Pompeo made against China from Taiwan to the South China Sea.
Yang Jiechi: China has undertaken some constructions on its islands and rifts. Most of them are civilian facilities, the purpose is to serve the interests of the Chinese people, and also to provide public goods to others. At the same time, it is necessary for China to build certain security facilities in response to.
Simone Gao: What is the Communist regime’s real stance? Are they willing to make concessions? Here is Wen Zhao again.
Simone Gao: The Trump-Xi phone call is taken by the outside world as Xi’s wish to soften his stance. But at the press conference held by Yang Jiechi and Pompeo, they said that China wouldn’t alter its path of China-brand socialism; denied militarization in the South China Sea; criticized Trump for withdrawing from the Iran nuclear deal; and warned the U.S. against supporting independence of Taiwan. What’s in Xi’s mind? Would he cave in when he meets Trump during the G20 summit?
Wen Zhao: For a head-of-state-level talk a very concrete solution is unlikely. A framework joint statement would be good enough if possible. Specifics will be left to executive officials to deal with. One example is North Korea’s denuclearization, quite a long process from the Trump-Kim summit to the outcome of scheduled steps. Right now the primary concern is that a so-called agreement needs a performance evaluation. The U.S. may hold off new tariffs for some time before deciding to put them into force, depending on China’s promise fulfillment. The revocation of tariffs underway needs an evaluation as well. Recent CCP actions suggest that they have shown no evidence of ending government-led industry programs. For example, Changchun-based First Automotive Works Group won an additional bank credit up to 100 million Renminbi. Currently, the No. 1 unstable factor for the world military pattern is the CCP.
Narration: Coming up, what cards does Trump have besides trade?
Part 2: China’s Worry Goes Beyond Trade
Narration: On Oct. 21, President Trump confirmed the U.S. will end the 1987 nuclear arms treaty with Russia, that banned ground-launch nuclear missiles with ranges from 500 kilometers to 5,500 kilometers for the two countries.
President Trump: We’re the ones that have stayed in the agreement and we’ve honored the agreement. But Russia has not, unfortunately, honored the agreement. So we’re going to terminate the agreement. We’re gonna pull out.
Narration: President Trump blames Russia. But analysts say the real cause of the U.S. withdrawal is China.
Narration: Since China is not constrained by the INF Treaty—it has developed and deployed an arsenal of high-end cruise missiles, both for land attack and by sea (anti-ship ASBM), capable of carrying conventional or nuclear warheads aimed at Taiwan-based targets and preventing U.S. intervention.
Narration: In 2017, the head of U.S. Pacific Command, Admiral Harry Harris, told Congress that approximately 95 percent of China’s missile force would violate the INF Treaty if they were part of the agreement. He said, “This fact is significant because the U.S. has no comparable capability due to our adherence to the Intermediate-Range Nuclear Forces (INF) Treaty with Russia.”
President Trump: Unless Russia comes to us and China comes to us and they all come to us and they say, “Let’s really get smart and lets none of us develop those weapons.” But if Russia’s doing it and if China’s doing it and we’re adhering to the agreement, that’s unacceptable.
Narration: The pressure China feels does not stop at the U.S. withdrawal from the nuclear treaty. On Oct. 23, at a National Space Council meeting, Vice President Mike Pence laid out milestones needed to establish the new armed service: Space Force, an initiative President Trump championed since he took office.
Narration: What is the Space Force about? The main idea is to find more effective ways to defend U.S. interests in space, especially the satellites that U.S. ground, sea, and air forces rely on for navigation, communications, and surveillance. These roles make them increasingly tempting military targets as China and Russia work on ways to disrupt, disable, and even destroy American satellites.
Simone Gao: Congressional authorization is required by law to form a new military branch. Nonetheless, neither the U.S. withdrawal from the nuclear treaty or the establishment of the Space Force targets China in a direct sense, but China feels the heat more than anyone else. Why is this so? Here’s what Wen Zhao has to say.
Simone Gao: You said it is the communist regime that is under utmost pressure rather than Russia since the U.S. withdrew from the INF Treaty. Why?
Wen Zhao: While Russia is a declining force. Both the INF Treaty and the Strategic Arms Reduction Treaty (START) were established within the framework of the U.S.-Russia confrontation. Now, the world situation has changed. The CCP, unbound by such treaties in the past decades, has developed and deployed medium-range missiles as they please, whose quantity and quality have posed direct threats to the presence of the U.S. military in the Western Pacific ocean. For example, it is claimed that “DF-21 missiles” and “DF-26 medium-range missiles” can attack large vessel targets such as aircraft carriers. Hence, unbalanced military tools for the U.S. So the INF Treaty remains insignificant to global security unless new important variables such as the CCP are included in the framework. If the CCP is unwilling to join such a multilateral arms limitation treaty, it will have to directly face an increased military deterrence from the U.S. and a growing defense burden on itself. Since mainland China’s most important cities are within 1,000 kilometers from the coastline, that is to say, within the range of medium-range missiles, once the U.S. has retired from the INF Treaty and begins to deploy land-based medium-range ballistic missiles, much greater military deterrence will form. So, the CCP is unmistakably under great pressure.
Simone Gao: To Americans, however, they don’t understand why China would or should react to superior U.S. military strength. Dr. John Lenczowski, Founder and President of The Institute of World Politics, and President Reagan’s Soviet adviser, explains.
Simone Gao: So do you think the U.S. withdrawal from the nuclear treaty and the establishment of the Space Force will force China into an arms race with the U.S.?
John Lenczowski: Well, I don’t think it’s going to force this, force such a competition. China has been engaging in this military buildup for many years now. They’ve been doing it stealthily, and China faces no serious military threat. It never faced a military threat from the United States. The United States has had vast military superiority, nuclear superiority over China. We have never used this to dictate our political conditions to China. But China, now all of a sudden, is—the Chinese regime, the Communist regime has been propagandizing its people and its military to consider the United States the main enemy. Why are we an enemy? What have we done? What have we done? Nothing except help China. So if China is going to start considering us to be an enemy, and if it is building its armed forces, anti-satellite weapons, hypersonic missiles, a neutron bomb, a blue-water navy, and massive building of nuclear weapons, their so-called “underground great wall,” which is probably hundreds if not—up to 3,000 miles of tunnels where they are hiding their nuclear arsenal. What’s this for? Where’s the threat? If this is the way the Beijing regime wants to consider the United States, then we have to be very careful. We have to protect ourselves. We are finally waking up to the realities that China is hostile to us. And it’s not a good policy for the Beijing regime to be antagonizing us. It’s not a good policy at all.
Narration: Coming up, is China’s situation today comparable to that of the Soviet Union in the 1980s?
Part 3: Reagan’s War with the Soviet Union
Simone Gao: China’s true economic and political state is gloomier than what the Western world perceives. 32 years ago, when President Reagan gained insight into how vulnerable the Soviet Union’s economy was and how they feared his SDI program, he didn’t hesitate to make a decisive move to bring down the whole thing. What can people learn from Regan? Let’s revisit what happened in the 1980s.
Narration: By winter of 1986, President Reagan had come a long way in combating the Soviet Union during the cold war. Reagan agreed with Churchill that the Soviet Union only respected strength and resolve in their dealings with other nations. He wrote in his autobiography that:
Narration: “We knew we would never get anywhere with them at the arms control table if we went there in a position of military inferiority; if we were going to get them to sue for peace, we had to do it from a position of strength.”
Narration: This judgment determined the journey leading to arms reduction had to begin with an increase of arms.
Narration: President Reagan started a multi-billion-dollar modernization of the U.S. strategic forces to regain the military advantage over the then more powerful Soviet Union. Among the efforts was the Strategic Defense Initiative (SDI), also known as Star Wars, an initiative aimed at rendering nuclear weapons impotent and obsolete.
Narration: The Star Wars program forced the Soviets to go bankrupt trying to keep up with it. The Soviet Union increased defense spending by 45 percent. They also suffered from Reagan’s other measures. They lost billions in oil sales thanks to Reagan’s strategy in boosting Saudi oil production. They had to spend billions more on third world dictators. They could not keep up.
Narration: On Oct. 11, 1986, Reagan and Gorbachev met in Iceland. Gorbachev proposed concessions in nearly every area of arms control but under the condition that the U.S. would give up its SDI program. Reagan refused the conditions and walked away with an important insight—that the Soviet Union feared his program. Reagan then tripled America’s SDI budget, which soon brought the arms race to an end and led to the collapse of the Soviet Union.
Simone Gao: Can today’s China be compared to the Soviet Union 30 years ago? Here is Dr. Lenczowski again.
Simone Gao: China’s economy has been hit hard by the trade war. And now it is also forced to compete with the U.S. on weapons and space. Plus Xi Jinping won’t give up his Belt and Road Initiative, which cost a fortune. So do you think this moment of China can be compared to the 1980s when the Soviet economy nearly collapsed in an arms race with the U.S.?
John Lenczowski: It’s a good question. I think that China’s economy is much, much stronger than the Soviet economy of that period. The Chinese communists learned a lesson from the mismanagement of affairs by the Soviet communists. The biggest crisis in the Soviet Union was a crisis in the military economy. They had a crisis in their consumer goods economy starting all the way back in 1917. China has avoided this problem. However, although China has developed a great capacity for technological innovation compared to the Soviet Union, it still depends heavily on theft of new inventions from the United States. If the United States gets serious about restricting technology acquisition and technology theft by the Chinese communists, then there could indeed emerge some serious strains within China. In the Soviet case, when we denied them technology, when we made our own military buildup, the regime was forced to try to either engage in domestic economic reform or to seek a bailout from the West to get financing and technology from the West. And the internal reform was never going to solve their problem. They needed the acquisition of technology from the West. If we choke off the technology from China, and if they decide that they can no longer present themselves to us as an enemy and as an oppressive power against their own people, then maybe political change can take place. But that’s not our decision. It’s the decision of the Chinese people.
Simone Gao: What do you think President Trump’s whole plan is towards China? Do you think his goal with China goes beyond balancing trade and creating a level playing field?
John Lenczowski: I don’t fully know. I know about people within the administration. And I know that there are those who believe that Chinese behavior towards us has reached the level of being intolerable. I believe that the president wants to restore reciprocity to the relationship. I don’t think that he wants to have a cold war. But if China is going to behave in a cold war fashion toward us, we don’t have much choice.
Simone Gao: So do you consider China a communist regime still?
John Lenczowski: Oh, yes. It is completely a communist country.
Simone Gao: So you think the U.S. and China are fundamentally incompatible?
John Lenczowski: Yes. China has been in a cold war with us ever since the triumph of the communists in 1949. They have been in a cold war with us this whole time. And we are only beginning to wake up to realize it now. Up until Deng Xiaoping and Kissinger’s desire to play 19th-century balance of power politics by pitting Beijing against Moscow, you know, this was a fundamental misunderstanding of the nature of the Chinese regime.
Simone Gao: I don’t know if Kissinger’s view has changed?
John Lenczowski: No. He’s too invested in all of that.
Simone Gao: But he does not have nearly as much power over this administration as over the previous administrations.
John Lenczowski: No. No.
Simone Gao: One of the qualities of great leaders is the ability to seize the right moment and do the right thing. When Reagan started the arms race with the Soviet Union, he was given a rare opportunity. The U.S. economy, after a long recession, was coming back strong. The Soviet economy, on the other hand, having spent half of its GDP on military buildup could hardly be sustained. Reagan seized that opportunity to force the Soviet Union into an arms race they could not keep up with. Trump is in a similar position today. A weak Chinese economy forces Xi Jinping to make big concessions that require the Communist Party to change the way they run their economy and, to a large degree, the way they run their country. They will try everything they can to weasel their way out. The only thing America needs to do is to persist. Again, this is not a debate about free trade versus economic nationalism. It is about national security and the American way of life. Only when the two countries truly come to terms on these issues can their relationship last. And the Chinese people will be better off in the long run as well. Thanks for watching Zooming In, I’m Simone Gao. See you next week.