The consensus narrative around the Trump administration’s final push to squeeze Beijing ahead of Joe Biden’s inauguration revolves around the notion that Trump wants to “cement his tough-on-China” credentials.
I’ll confess I’m a bit dubious. For one thing, Trump’s credentials are pretty solid in that area. After all, he spent two of his four years in office perpetrating a manifestly quixotic trade war against the world’s second-largest economy.
That battle culminated in what was supposed to be a multi-phase “deal,” with “phase one” going into effect a year ago this month. The pandemic derailed the implementation of the agreement and China was behind on its obligations for the duration of 2020.
If you go by Trump’s preferred gauge of “winning” on bilateral trade, the US didn’t prevail. China’s surplus with America hit a record in November, the same month Trump was voted out of office. (China’s overall surplus hit another record in December.)
But even as the battle (and the war) was lost, Trump did fight it. Nobody can deny that. So, it isn’t clear what else he, personally, needed to prove by cracking down on China further on his way out the door.
Another reason I question the consensus narrative around Trump’s final shots at the Chinese is that while he’s most assuredly a spiteful person, it’s not entirely clear why he would care at this juncture. How bilateral relations between the US and China evolve from here is irrelevant for Trump. Even if Sino-US relations become germane for him again (e.g., if the Senate doesn’t bar him from running for office in 2024), there’s plenty of time for him to resurrect the xenophobic, “us versus them” balderdash.
In short, it just seems like the administration is going through quite a bit of effort for no readily discernible reason, other than perhaps to make life hard on Joe Biden.
With that in mind, one of the top “stories” to kick off the week was a report from Reuters that Trump revoked key licenses of some Huawei suppliers, including Intel, further choking off sales to China’s corporate crown jewel. The administration “intends to reject dozens of other applications” to supply the company, according to Reuters’ sources, one of whom added that four companies lost a total of eight licenses.
By Reuters’ count, some 150 licenses were pending covering at least $120 billion in equipment. Underscoring what I think it’s fair to call rampant disorganization and generalized incompetence, one person said the backlog of pending licenses was due to arguments among different agencies which “couldn’t agree on whether they should be granted.”
Apparently, there are an additional quarter-trillion (!) worth of applications sitting around somewhere waiting to be processed.
It sounds as though the eight license revocations may not have been executed on the merits, but rather because the administration needed to avoid a scenario where officials were compelled to explain why pending licenses weren’t granted. Here’s Reuters one more time:
Officials developed detailed guidance with regard to which technologies were capable of 5G, and then applied that standard. That meant issuing denials for the vast majority of the roughly 150 disputed applications, and revoking the eight licenses to make those consistent with the latest denials.
Clearly, this is a convoluted mess, and it comes on the heels of a dizzying array of broadsides and similarly confusing directives tied to a Pentagon list that identifies a hodgepodge of Chinese companies as puppets of the PLA.
Earlier this month, the NYSE found itself backtracking and re-backtracking on plans (initially announced on New Year’s Eve) to delist US-traded shares of China’s telco giants. Trump also targeted SMIC beginning in September and recently moved to turn the screws on CNOOC, prompting concerns about whether China’s oil majors would become figurative cannon fodder. Xiaomi was similarly accused by the administration of military ties. It’s worth noting (again) that Chinese corporates managed a record haul from US IPOs and follow-ons in 2020 despite bipartisan support for curtailing US investors’ capacity to funnel capital to the nation.
“The profile of the companies targeted… is staggering,” Bloomberg wrote Monday, adding that ultimately, everything is now up to Joe Biden, whose administration “will have the power to either keep the restrictions in place, remove them or tighten them further.”
I suppose one way to conceptualize of this is simply that Trump plans to point to any efforts at reconciliation under Biden as “evidence” that America is no longer “tough” on the world’s only other superpower.
And yet, there’s no indication that Biden plans to immediately dial down tensions. Rather, he’s more likely to take the same approach to Sino-US relations that he will to everything else in the first couple of months — namely, he’ll wander around the smoldering remains of a once lush forest carrying a small fire extinguisher and putting out any remaining flames before consulting with advisers on what kinds of new trees to plant.
I see again the forest fires are starting. They’re starting again in California. I said, you gotta clean your floors, you gotta clean your forests – there are many, many years of leaves and broken trees and they’re like, like, so flammable, you touch them and it goes up.
— Donald Trump, August 20, 2020
These last minute moves regarding trade policy with China remind one about the incompetence versus malice framework for understanding the motivations of an actor. I was brought up to challenge my thinking such that if I thought an actor was acting with malice, I was not presuming good will. Malice was always far less frequent than what we believed. This we were told by those wiser than us.
I’m older now and trying to be flexible in my thinking, to adapt to my environment. I’m working hard to accept that we live in a country where both incompetence and malice can be simultaneously accepted as the motivations of an actor.
That our elites have been so sanguine about our trade practices with China, and more generally, the lack of investment in the future, productive capacity of our economy, is all we need to know.
I’m thinking about starting an ETF with this investment theme: “America, born from colonies, and to colonies we will return.”
Perhaps it’s time to approach it as something other than a war. In real life, I never battled my suppliers (haggled, maybe, but no all out conflict), nor my customers.
And as Trump railed against the seemingly incompetent failure to clean up the forests in California someone pointed out that those forests were mostly federal properties…… ooops. Another foot in mouth.