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Don Hank 2016-12-09 by Don Hank  -    
 

Trump on China market economy status


Donald Trump has made some angry statements about the Chinese manipulation of its export market. First of all, does he have a valid point and secondly, what is he likely to do about this if he does?

In the early 1970s President Richard Nixon eliminated the gold standard in US monetary policy. This was a threat to the US dollar.

To compensate for this risk, Nixon did two things: 

1) he made a petrodollar agreement with the Saudis whereby the US would defend the Saudi royal family in return for their charging only US dollars for their oil. This policy helped prop up the value of the USD. (bloomberg revelation)

2) At the same time, he promoted the idea of granting China Most Favored Nation status, which US policy forbade to be given to communist countries. This status would enable the US to trade with China and would allow Americans to purchase goods at a lower price, effectively offsetting the lower value of the dollar caused by the loss of the gold standard.

The choice of China as a trading partner was no doubt intended to drive a wedge between that country and Russia, the country that the US government most feared. This was confusing to many Americans, who wondered why one communist country could be allowed to trade with the US while another could not.

Most naively believed the US when it said the proposal was about trade. In fact it was highly political.

Most favored nation status for China was not approved during Nixon's administration but a subsequent administration finally passed it, based on a false propaganda message that this would give the US a major advantage by allowing the Chinese to buy from the US and boost our economy.

Despite this propaganda, an enormous trade deficit arose with China and it only grows bigger every year.

Incredibly, this old Russia-China double standard has survived for over 60 years, well into the 21st Century, where the US has slapped sanctions on Russia while rewarding China with virtually free trade conditions, even though both countries are seen as a military threat and the favored one is communist while the disadvantaged one is not.  Clearly, the idea of creating a divide between China and Russia, at Russia's expense, is part of Western foreign policy and it has failed colossally so far, just like most policies that are sold to the public for one ostensible purpose but are based on another -- ulterior -- motive.

Today, there is less justification for such a pro-China, anti-Russia policy than ever because -- largely as a result of this meddling -- Russia and China have become stronger economic and military partners that together are now seen in the West as a threat to US hegemony.

Now for the first time in 60 years, a US president is challenging this old time worn policy of favoring China and making Russia a scapegoat for all Western ills. President-elect Donald Trump has spoken of conciliation between the US and Russia in his campaign and now speaks increasingly harshly of China.

No one knows if this harshness will translate into policy because Trump often says things and then changes his mind or makes promises that he later realizes he cannot keep.

The bone of contention in US-China relations (and in EU-China relations) is the fact that the WTO had in 2001 declared that China was a non market economy and had issued various criteria for determining its progress in acquiring market economy status (MES), a status that would allow trade with the West with little or no tariffs or duties levied on Chinese goods.

There is currently no question that China does not have a market economy because the government still subsidizes certain goods such as steel, aluminum and ceramics, which are therefore still subject to trade duties in various Western countries.

Now in 2001, the WTO granted a limited trade status for China despite its not being a market economy, and gave China 15 years to prove itself.

During the first 15 years, according to the WTO protocol, the standard price is taken as the internal market price in China of the good in question, or alternatively, the price observed in a similar country (“surrogate” country) for said good. The deviation indicates the degree of government influence and hence the height of the trade barrier applied in the West. The latter method has been used in the EU.

After these 15 years have elapsed, this alternative method may no longer be used. The deadline is upon us -- December 2016.
However, the Chinese government site xinhuanet.com  interprets the protocol loosely, and wrongly, as follows:

…according to the international rule, the protocols for China's accession to the World Trade Organization (WTO) in 2001 dictate that China will automatically switch over to market economy status when the Surrogate Country approach expires on Dec. 11, 2016.


Going hand in hand with the granting of most favored nation status to China was President Carter's decision to confer diplomatic relations on China, which mandated cutting off relations with Taiwan, angering the Taiwanese.

By accepting a phone call from the Taiwanese president last week, Trump showed that he may in fact be weighing reversing, or at least modifying, policies established in the Nixon and Carter administrations regarding China.

China's reaction to both the Taiwan phone call and his remarks about Chinese chicanery was anger.

Coupled with Trump's kind gestures toward Russia, this all adds up to seismic rumblings that signal a possible geopolitical plate shift in US foreign policy.

Trump will need to exercise extreme caution and take a crash course in diplomacy to see us through the next 4 years without a major misstep. However, if we analyze the approaches taken by Nixon and Carter, we see that they were radical upsets of the world order and each served to strongly favor some nations while sullying others. We have come to see this as the American way.

Donald J. Trump has the opportunity to restore a balance without stepping too hard on certain toes. He has it within his power, for example, to oppose free trade agreements, like TPP, which are designed to snub China and Russia. After all, Trump says he believes in free trade, and free trade is free trade, not a political weapon to punish foes. Will he be wise enough to recognize this and respect everyone's interests?

Unfortunately, Trump probably has no US advisors who will sway him not to favor some nations while slighting others. Nonetheless, such a balanced approach to foreign affairs would be wise. Vladimir Putin is a master of this approach. He calls it the multipolar world.

Don Hank
Correspondent of the "Alliance for the Sovereignty of France" in the USA

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