Put national interests first in trade

By Eric Chiou 邱奕宏  / 

Wed, Nov 15, 2017 - Page 8

In the world of fierce competition among nations, an open and free global trade system is not self-evident, but hinges on steadfast support from some great powers that benefit from it.

Hence, no country should naively believe that nations have a sacred obligation to shoulder the responsibility of global economic growth by sacrificing their national interests and enduring aggravating trade deficits that hollow out their economic foundation and national capabilities.

Thankfully, US President Donald Trump’s administration has bravely hit the nail on the head and confronted this challenge, at least verbally.

Despite the fact that Trump’s protectionist tone has been heavily criticized by liberal economists and foreign leaders, it is irrefutable that the US’ comprehensive economic power might soon be surpassed by China’s economic clout, if the present trend of global economic imbalance continues.

Unfortunately, that is not only bad for the US, but also an undesirable consequence for the free world.

At a joint press conference in Beijing last week, Trump, oddly enough, did not blame China for the US’ massive trade deficit.

“After all, who can blame a country for being able to take advantage of another country for the benefit of its citizens? I give China great credit,” Trump said.

“In actuality, I blame past [US] administrations for allowing this out-of-control trade deficit to take place and to grow,” he added.

Indeed, according to US statistics, last year, the US trade deficit in goods reached US$736.7 billion, with China accounting for 47 percent with a surplus of US$347 billion.

Even worse, many economists forecast that the US trade deficit with China would reach nearly US$370 billion by the end of this year.

Hence, Trump said: “We must immediately address the unfair practices that drove [our trade] deficit along with barriers to market access.”

By highlighting his top priority of diminishing the US trade deficit and promoting fair trade, Trump’s trip to Asia has intensified the anxieties of many Asian nations that enjoy a trade surplus with the US.

Similarly, the development of multilateral trading systems in the Asia-Pacific is destined to slow down due to the absence of US leadership.

Many have criticized Trump for his parochial nationalism with his “America First” policy and unwisely surrendering US leadership to China. Nevertheless, no nation can bear the unceasing bleeding of its economic fundamentals by allowing ruthless assaults by foreign economic forces without taking action to defend its economic livelihood.

Moreover, no one should bet on a weakened economic giant that has neither the will nor the ability to support and protect the stability and freedom of the global order, in which most nations benefit without paying their reasonable dues.

A constantly swelling trade deficit is like a tumor in the US economy and there is no easy cure for this chronic disease. This grim reality debunks numerous myths that US liberal economists have misleadingly advocated and provide insightful implications for Taiwan.

The first widespread myth is that the manufacturing sector is no longer important and deserves little effort to preserve. This myth is built on the questionable assumption that the service sector will take a leading role in the US economy and generate more economic benefits for Americans.

Innovation in the financial sector and the information-technology industries had been widely perceived as being two major pillars and engines for growth for the US economy. Instead, both rosy expectations nurtured two gigantic bubbles, while undermining the strength of US manufacturing to renovate.

Furthermore, the rapid growth of the US financial services sector intensified rampant speculation, and eventually led to its destruction and the US economic meltdown as a whole.

Externally, the consequences of the global imbalance, with the US trade deficit paving the way for massive inflows of foreign capital into the US, fostered a US real-estate bubble in 2007 and led to the global financial crisis of 2008.

Although the indolence and negligence of US financial regulatory and supervisory agencies should take the blame, US politicians and the public alike who have indulged in overconsumption and tolerated a persistenly swelling debt are similarly inexcusable.

What politicians in Washington have prescribed as remedies for this chronic illness are self-deceiving placebos, such as compelling other countries to purchase US goods, devaluing their currencies and opening up foreign markets.

However, few have dared to confront the biased liberal economic ideology and point out that the essence of the global market remains the severe competition among nations. No one dares to call for the restoration of the long-lost diligent spirit and hardworking tradition of Americans.

Even worse, profit-driven US multinationals and their accomplices in academia and Washington have aggravated the degeneration and distortion of the US economy by claiming that outsourcing is an innovative way of enhancing economic efficiency and global competitiveness, while leaving countless laid-off workers and run-down industrial neighborhoods behind.

The second myth is that technological innovation will create a better economic welfare and provide more job opportunities. Indeed, US technological innovation leads the world with its cutting-edge advantages — but it is hardly a magic wand for job creation.

Growth in the financial services and high-tech industries has been unable to absorb the jobs that had been lost in the US manufacturing sector. The immobility and inertia of labor forces also make it almost impossible for middle-aged manufacturing workers to shift to other industries.

It is no surprise that a significant number of blue-collar Americans vented their deepest grievance and grudge by voting for Trump, who has spoken for them.

Another myth is that the more liberal and open environment a state facilitates, the more innovative businesses can prosper. The truth is that a liberal and free environment fostering business innovation is not a guarantee that industries will be better equipped to deal with global competition.

Indeed, China has shown that it can provide an even freer and more dynamic and innovative business-friendly environment, as long as corporations’ activities do not touch upon politics, nor disobey its policies.

An inconvenient and deplorable truth is that the majority of profit-driven entrepreneurs and companies rarely care more about democracy or freedom of speech than market share and revenue. After all, it is unrealistic to hold each company to the same standard as Google when it comes to the Chinese market.

Last is the myth that what is good for private enterprises is good for the nation. The interests of private enterprises are hardly the same as national interests. General Motors or Wall Street are unlikely to see eye to eye with Washington, unless Washington’s policy benefits them.

Nevertheless, since national interests are always larger, broader and more important than private interests, what is good for the US is likely to be good for US industries or Wall Street as a whole, but not the other way around.

Vladimir Lenin once said that capitalists would even sell a rope to hang themselves for profit. Any prudent national leader should never bet their economic future on the rope of capitalists.

Looking at China’s remarkable economic success, one should bear in mind that China’s economic miracle was not built on a free market, nor can it be attributed to its people’s unrivaled diligence.

Beijing’s nationalist economic policy played a critical role in this success, with US indulgence and its false belief in converting China to capitalism also making a significant contribution.

Ironically, China has transformed itself into a new gigantic beast of “national capitalism,” which is even more powerful, efficient and uncontainable than Western liberal capitalism.

What can Taiwan learn from the US without making the same mistakes?

First, Taiwan should remember that national interests should always be the priority. It is great if the majority of business interests overlap with national interests. If they do not, national interests should never be compromised or exchanged for short-term corporate self interests.

Second, manufacturing jobs are crucial, because they can create sufficient employment and enhance industrial capabilities. The limitations and drawbacks of the outsourcing model has been exposed in many countries, and Taiwan does not have the luxury of repeating the same mistakes the US has made.

Third, high-tech and innovative industries are important, but other sectors should be taken care of as well.

A fairly comprehensive and balanced approach to strengthen Taiwan’s industrial development and upgrading is critical, since it can lessen social instability due to an inflated income disparity among people in different sectors.

Finally, one should be aware that the so-called dream of a free-trade world does not exist in our time. The global market is all about fierce competition between states and corporations.

For the sake of its national interests, every nation needs to adopt certain protectionist policies to various extents.

Trump’s blunt remarks might have just unveiled this inconvenient truth, and a small nation such as Taiwan should adjust its policy accordingly and set sail in the direction of the upcoming phase of new global competition.

Eric Chiou is an assistant professor at National Chiao Tung University.