Donald Trump can’t help himself. He has to escalate. I’d call it a compulsion, but he wants to do it.
Although it didn’t get a lot of press, Trump told CFIUS late last week to “protect America’s national security interests from threats posed by foreign adversaries like the People’s Republic of China.” So much for “President Xi’s a good friend of mine.” Maybe if he invades Taiwan, Trump will like him better. If Ukraine’s any indication, you have to murder a few hundred thousand innocents to win an economic reprieve from Trump.
The directive to CFIUS was part of a national security memo which doubled as a blueprint for “making America the world’s greatest destination for investment.” Among other things, it seeks to crimp Chinese investment in key strategic US sectors including technology and critical infrastructure. It also calls for tightening further the screws on outbound investment to China, which is to say the Trump administration may pile still more restrictions on US investment in Xi Jinping’s semiconductor manufacturing buildout and also curtail Americans’ capacity to invest in China’s AI push, all in a bid to prevent US investors from inadvertently (or not, because most big American investors will gladly jeopardize US national security if it means making a buck) funding the PLA.
The same memo singled out Beijing for “systematically direct[ing] investment in American companies to gain access to cutting-edge technology [and] intellectual property.” It also blamed Xi for “exploiting” American “ingenuity to fund and modernize [China’s] military, intelligence and security operations.” Amusingly, Trump cited Chinese hackers’ attempts to break into Treasury databases. The Chinese could learn a thing or two about that from Elon Musk. And maybe they will! Or already have. Musk’s one of the few Westerners able to gain an ear with the Standing Committee, and as discussed here last week, you can bet your last dollar (or your last 7.25 yuan) that Beijing’s actively pursuing espionage opportunities related to DOGE and its small staff of insufficiently vetted early-twentysomethings.
The US is also throwing its weight around in a bid to prevent Beijing from skirting tariffs. Late last week, during what Mexican Economy Minister Marcelo Ebrard called “a constructive” chat with Howard Lutnick (somehow, I doubt “constructive” is the best word), the Trump administration implored Claudia Sheinbaum’s team to put new levies on imports from China. Presumably, Mexico’s choice is between imposing import duties on Chinese goods or facing the imposition of steep taxes on its own exports to the US.
Trump’s also keen to sink China’s ships. Not literally. Not yet. But figuratively, via the USTR which, as part of a legacy 301 probe into what the US describes as Beijing’s “unreasonable targeting of the maritime, logistics and shipbuilding sectors for dominance,” may charge fees for the use of Chinese boats. The goal, according to the public notice, is to “promote the transport of US goods on US vessels.”
So, basically, the US is prepared to unilaterally declare a Chinese monopoly on shipping. And the USTR’s keen to tax that monopoly “at a rate of up to $1 million per entrance to a US port or $1,000 per net ton of [a] vessel’s capacity” or… I could go on. The proposed action includes any number of variations to cover all manner of scenarios involving the operation of Chinese-made ships.
The ship idea’s actually a carryover from the Biden administration. If your question’s whether the fees would be passed along to US consumers (i.e., the Americans who buy goods ferried on the Chinese ships), the answer’s “yes, of course, they would.” These proposed shipping fees are conceptually identical to, say, tariffs on metals. The idea is to restore American competitiveness where it’s been lost, but the effect will simply be to raise prices for consumers. And with nothing (or next to nothing) to show for it in terms of reclaimed industrial capacity.
Let me dwell on that for another second. The notion that charging a transport fee on Chinese-built boats is going to result in a renaissance for US ship-building is little short of ridiculous, and underscores what’s already plain: America’s out of ideas or anyway out of practice when it comes to industrial policy.
Regular readers are apprised that I’m no fan of Xi’s, and that’s me being polite. He’s a throwback to the 20th century’s worst sort of leaders, he subscribes wholeheartedly to an uncompromising brand of communism which, at its worst, has been shown to produce widespread human suffering and, most importantly, there’s a decent chance he’ll try to kill us all one day, where “us” means Westerners.
That said (and those are some pretty weighty caveats), America’s position vis-à-vis competition with China looks unavoidably farcical on some days. Basically, Washington says this to Beijing: Wherever you’ve managed to outcompete us, it’s obviously the result of duplicitous chicanery and therefore we’re well within our rights to unilaterally tax you as a corrective mechanism, and wherever we’ve managed to outcompete you, it’s obviously the result of merit and hard work, and as such, we’re well within our rights to impose artificial barriers to prevent you from catching up, because you’re sneaky and you can’t be trusted.
Maybe that’s mostly true, but it feels a lot like “heads we win, tails you lose.” Bottom line: There’s something cruelly ironic about America’s efforts to construct an elaborate system of heavy-handed, artificial inhibitors to correct a set of problems the US insists are the result of Beijing’s unnatural interference with the Invisible Hand.
It’s also that the current executive branch members are lazy. They aren’t prepared and in most cases aren’t capable of doing the hard work required to run a complex economy/country efficiently. It’s much easier to make stupid one size fits all pronouncements that you can send out in a tweet that will most assuredly create chaos and pain for the proletariat.
I am seeing a lot of overlap between H’s conception of US-China trade competition and Republican political partisanship. Next up — big beautiful tariffs on Democratic voters?
The biggest benefit of the House being so close to even is that it limits Trump’s ability to target blue states via the tax code. Not to say he won’t take advantage of his leverage to “punish” blue states in other ways (never mind how much blue states already subsidize red states), but there are enough swing seats in California and New York to hopefully minimize the damage. Unfortunately, it’ll be the poor and minorities that take the brunt of whatever Trump does to punish blue states for the crime of not supporting him.
For all this talk about Chinese shipping, a startling fact I just learned is that less than 2% of all the cargo going through US ports is in US registered ships. There are only 180 US registered cargo vessels on the high seas. The Chinese didn’t do that to us; we chose that. We register our ships in Liberia, Panama and other seemingly illogical locations for legal, financial, and other reasons. Maritime law is rather interesting and has less to do with geopolitical issues that it does with finding the best way to skate on the world’s ponds. We don’t seem to want to take responsibility for our boats and are happy to let others do that so China builds the infrastructure for our ports, builds many of the world’s ships, along with South Korea, and is happy to move the world’s goods.
Like it or not, mostly by choice I would aver, the US doesn’t like big infrastructure. It’s really not all that profitable. Big buildings and other large and difficult infrastructure projects, even in the US, may be expensive but usually involve on-off projects and resist scale savings. These projects increasingly involve international crews of highly skilled individuals, an increasing number of whom are supervised by female engineers. Boats, trains, big construction and other complex projects are expensive and complex. There is no easy money in these kinds of projects so US companies focus elsewhere for bigger profits.
It’s not just the infrastructure. The Jones Act is pretty much the only thing keeping the US Merchant Marine alive. It requires US ships to be built and maintained in US shipyards, of which there are still a few. The problem is that the US shipyards are not competitive. I have been in shipyards all over the world (for repair work and new construction). In Singapore, Japan, Korea the work is done quickly, efficiently, and relatively inexpensively. On the other hand, I have seen ships being towed out of US shipyards months after they were due to be finished and way over budget. I don’t think you can legislate/subsidize an industry into competitiveness. It will be interesting to see how Intel does in the chip production business under what I see as similar conditions.