Why We Should Be Nervous

Back in July of 2016, long before I thought of running for office, I wrote about Donald Trump’s economic policies towards China;

“Of course, if we place tariffs on their goods, they are likely to do the same to ours. As the prices of our domestic goods increase and inflation becomes certain, our currency will be less valuable to them and so they will be able to buy even less. Countries like China and India, where almost half the world’s population (market) lives will be unable to buy American made products at all.”

Now almost 2 years later The Donald has ramped up discussions about tariffs, and he may be right (yup, I said it). While he recently tweeted “We are not in a trade war with China, the trade war was lost many years ago…”Make no mistake, we are in a trade war with China that is going to last for decades.

It began on March 8th when the US announced tariffs on Chinese steel and aluminum. This past Tuesday the Office of the US Trade Office announced tariffs on over 100 Chinese goods, particularly in the technology sectors.  These tariffs will affect about $50 billion of imports annually. So, later the same day China announced tariffs on guess how much US exports? Yup you guessed it, over 100 products totaling, you guess it right again, about $50 billion. If that doesn’t sound like a trade war, it’s is certainly a war of words. And the stock market, which believes in words a lot, reacted, dropping almost $1500 of value in less than a month.

Here is why we should be nervous. Back in 2015, Beijing announced the “Made in China 2025” initiative. That document calls for China to be nearly self-sufficient in key technology industries and for Chinese companies to own 80% of those sectors in their home markets by 2020.  The initiative plans to accomplish this by issuing huge low-interest loans from state investment funds and aiding the purchase of foreign competitors. China expects to invest over $300 billion of government funding in the plan. President Trump recently stopped two Chinese acquisitions of American tech companies. Canyon Bridge Capital Partners, a Chinese-controlled buyout fund, tried to takeover chipmaker Lattice Semiconductor and Singapore’s Broadcom attempted a takeover of Qualcomm, one of China’s biggest competitors in wireless communications.

This past Sunday, Premier Li Keqiang said “We will accelerate R&D (research and development) and commercialization of new materials, artificial intelligence, integrated circuits, bio-pharmacy, 5G mobile communications and other technologies…” In the process, China plans to reduce the dependence on companies like Boeing, Airbus, General Electric, Siemens, Samsung and Intel.  According to German think tank Mercator “Chinese high-tech investments need to be interpreted as building blocks of an overarching political program. It aims to systematically acquire cutting-edge technology and generate large-scale technology transfer. In the long run, China wants to obtain control over the most profitable segments of the global supply chains and production networks.”  That sounds like war.

While the plan to invest $300 billion into economic growth sounds crazy in light of the fact that the Republican controlled US government just added $1.5 trillion to our national debt by giving tax breaks to the wealthy, it is not without precedent. Remember something called TARP (Troubled Asset Relief Program), aka the bailout? That program invested, you guessed right once again, over $300 billion. Because most of that money was in loans and equity all recent analyses place the results at around $30 billion of profit! There is one major problem with that solution, according to Republicans; it was implemented by President Obama.

Now China is planning to do roughly the same thing. Although they are not facing an international economic crisis they understand that in the near future they will be if they don’t invest today. Unfortunately, our government can’t focus on more than four years at a time. If we don’t change our economic policies by investing in innovative technologies, we are destined to join the ranks of second-tier countries that depend on foreign countries like China to lead the way into the future.