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FOREIGN AFFAIRS

Reindustrialization: What the New U.S.-China Trade Talks Mean.

The eyes of the world – especially the eyes of Wall Street – were on President Donald J. Trump and China President-for-life Xi Xinping as they met at the G-20 summit in Osaka Japan on June 29.

China agreed to resume negotiations with the U.S. for a comprehensive, enforceable agreement that achieves a balanced trading relationship between the U.S. and China.

President Trump made it clear that any agreement must address China’s theft of intellectual property, forced technology transfer, subsidies, dumping, state-owned enterprises that don’t follow free market rules, and hacking of U.S. government and private sector computer networks.

As a precondition for resuming talks, China demanded all tariffs be lifted and for Huawei, the telecom company that is actually a cyberespionage arm of the Chinese communist People’s Liberation Army, to be removed from America’s blacklist.

President Trump did not do either.

President Donald J. Trump and First Lady Melania Trump, joined by President Xi Jinping and First Lady Peng Liyuan, applaud and thank the performers at a cultural performance at the Great Hall of the People, Thursday, November 9, 2017, following a State Dinner in their honor, in Beijing, People’s Republic of China. (Official White House Photo by Andrea Hanks)

Trump also didn’t roll back the tariffs that are in place, including the 25 per cent tariffs announced in May when China scuttled the talks by reneging on previously agreed-upon terms.

That means U.S. companies must apply for a license from the US Department of Commerce to sell products, software and services to Huawei. License applications are reviewed by the Defense and Commerce Departments.

President Trump, the Pentagon, and the Department of Commerce have said Huawei is engaged in activities that are a danger to U.S. national security and foreign policy. There is bipartisan agreement on this point.

The U.S. President also asserted that American businesses will only be allowed to sell Huawei products and services that do not threaten national security.

Nonetheless, China agreed to return to the negotiating table.

China’s return to the negotiating table validates President Trump’s approach and confirms America has the upper hand in negotiations.

China’s return to the negotiating table validates President Trump’s approach and confirms America has the upper hand in negotiations.

The resumption of talks gives Western businesses more time to diversify their supply chains away from the Chinese.

There’s no deadline on these talks.

SUPPLY CHAINS.

The existing 25 per cent tariffs remain in place and tariffs on another $300 billion of goods from China are still on the table, though postponed. This means increased tariffs could go forward if China does not negotiate in good faith.

If business is looking for certainty – as we are constantly told – the certainty is that tariffs on goods from China are here, and more may come. Investors should ask management if the business’ supply chains are diversified or concentrated in China.

Responsible corporate managers diversify their suppliers. No responsible corporate leader would allow their company to be dependent on a sole supplier that could be disrupted, whether by natural disaster, political upheaval, or another unforeseen event.

Similarly, no responsible manager would have their company’s supply chain concentrated in China.

It is well established that the Chinese communist government does not respect rule of law, private property, or intellectual property rights.

Japanese corporations diversified their supply chain out of China in 2012 following a confrontation over disputed islands in the East China Sea that instigated a crackdown by Beijing on Japanese companies operating in mainland China.

The possibility of supply chain disruption is real and growing, but there is no need to have supply chains concentrated in China. Nowhere is it written in stone “Thou must keep the Sabbath, and thou must keep thy supply chains in China.”

China exports manufactured products and five of the top ten products China exports to the U.S. are also made in Mexico.

Rearranging existing supply chains and decoupling from a country is neither impossible nor unprecedented.

Many corporations decoupled from the United States twenty years ago, in the process decoupling millions of Americans from their jobs.

There is yet another, even more significant reason Western companies should diversify their supply chains and not be dependent on China.

EXPANSIONISM.

Secretary of State Pompeo said we must speak honestly about the nature of the Chinese regime.

It’s an authoritarian regime that has imprisoned more than one million Chinese Muslims in camps in Xinjiang. It has pioneered a digital credit system in which users trade freedom and privacy for government benefits. It’s the future China wants for China and for the world.

In plain sight, China steals intellectual property for military and commercial purposes. It wants to dominate Artificial Intelligence, space technology, ballistic missiles, and many other areas. China’s growing capacity is matched by its appetite for expansion.

We fundamentally erred by underestimating and misunderstanding China’s true intention…” – Senior U.S. State Dept Official

A senior State Department official recently admitted to the Washington Post, “We fundamentally erred by underestimating and misunderstanding China’s true intention, which is to create a Chinese Communist Party-dominated world order to replace the world order created by the U.S. and its allies.”

The current dispute is about more than the price of consumer goods. It’s about upholding Western values – property rights, human rights, freedom of conscience, and freedom of thought.

Wikimedia, CC

And despite all the predictions by prophets of doom, we have seen no evidence of inflation. Basic economics tells us why not: competition results in lower prices as businesses vie for each others’ customers.

China has competition – and it has been absorbing the cost of tariffs on exports – outright or through currency devaluation – so it doesn’t lose customers to competitors like Mexico.

Corporate mouthpieces who say it is inevitable “consumers will pay higher prices” are just trying to scare Americans.

What’s inevitable is that business leaders need to get their house in order and diversify their supply chains, away from communist China and back to America.

The Trump administration’s program of tax reform, trade reform, regulatory reform, and energy dominance gives the United States a competitive advantage in the global economy and make the United States the best place on earth to live, work, invest, do business and raise a family.

The reindustrialization of America is the key to broad-based prosperity that will solve a host of problems, from burdensome debt loads on recent graduates, stagnant wages, excessive income inequality and immigration.

Curtis Ellis is Senior Policy Advisor with America First Policies. He was a senior policy advisor with the Donald J. Trump campaign.

Written By

Curtis Ellis is a Senior Policy Advisor with America First Policies. He was a senior policy advisor with the Donald J. Trump campaign.

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