• Trump Takes on China in Trade, but Is Wrong With His Attack

    Trump Takes on China in Trade, but Is Wrong With His Attack

    U.S. President Donald Trump stood side by side with Chinese President Xi Jinping on Thursday, despite the fact that Trump continues to depict — wrongly — the China-U.S. trade relationship as toe-to-toe.

    (This article originally appeared in TheStreet.com)

    That relationship is “one-sided and unfair,” Trump said in a joint address in Beijing. There’s the “shockingly high” trade deficit to consider, he explained. There’s also the $300 billion in the theft of U.S. intellectual property and forced technology transfer that the United States suffers every year, per U.S. government figures.

    Trump has, to be fair, delivered on this, the most-important trip of his presidency. He has conveyed more precisely in person his message that the United States is disadvantaged by its trade with China and Japan. He’s wrong, but he’s right to express himself so clearly when he previously fudged the point when meeting the leaders of those countries on home soil.

    At least he won applause from the assembled Chinese and U.S. executives in attendance to hear the two leaders speak. It was for a back-handed compliment.

    “I don’t blame China,” Trump conceded, pausing when clapping began. “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.” Cue more applause.

    As in Japan, Trump has been more confrontational on trade than when he previously welcomed both Japanese Prime Minister Shinzo Abe and Xi to his Mar-a-Lago resort. This is the biggest test of Trump’s diplomacy skills that he has ever encountered, and some observers suggest the best outcome of the two-week trip for a very undiplomatic man would be that he does no serious damage.

    The idea that China is robbing or taking advantage of the United States on trade is wrong. Let’s just say that. Trade is a two-way exchange of goods that both sides agree. If you don’t like it, walk away.

    Trump was wrong in Japan, where he complained that Japanese automakers don’t make enough cars in the United States. In fact, three-quarters of Japanese-brand cars are made in U.S. plants, providing U.S. jobs. The likes of Toyota Motor (TM) , at times the biggest maker of U.S. cars, and Honda Motor (HMC) bailed out the U.S. car industry by building factories.

    Running a trade deficit sounds bad, but it is not, as this piece from the libertarian think tank the Cato Institute explains. It often represents that one nation is mature, growing slower and therefore both demanding goods and exporting capital, often investing in factories in the other nation. The other side is growing fast from a lower base and largely making cheap goods that the other is buying. Then it invests the dollars, in this case, that it earns in U.S. assets.

    Global trade is not simple, and it’s not a zero-sum game. Consider the complex web of business arrangements that sees Action Alerts PLUS charity portfolio holding Apple (AAPL)design products in California, as it so famously says on the box, then make them in China, minimize tax in Ireland, and then sell them all over the world. Including the United States. Meanwhile, Chinese and U.S. investors alike benefit from the 52% run-up in Apple stock this year — the product of an enormous trade deficit of phones sold into California alone.

    I don’t know how economists figure that all out, but I’m going to stick my neck out and say, for simplicity’s sake, that it’s all good. We get our iPhones, they’re well-designed, well-made as well, we like the product, the price isn’t too high, a lot of people in China and the United States get paid. Shareholders make money. And we’re all happy. What’s wrong with that?

    The theft of intellectual property is rampant, particularly in China. That needs to be corralled. But Trump has actually pulled the United States out of the Trans-Pacific Partnership, the 12-nation pact that includes Japan but not China. The TPP includes groundbreaking stipulations over the treatment of intellectual property and service industries that are not normally covered in trade deals, which historically focused just on import tariffs put on goods.

    Trump laid fault for the U.S. being victimized and preyed upon by China squarely at the door of “past administrations” who allowed an out-of-control trade deficit to occur. “It just doesn’t work for our great American companies and it just doesn’t work for our great American workers,” he said.

    The rest of his address, as well as his stay, has been gracious. He welcomed a “fair and lasting engagement” on business matters, and said the United States is working to open up its energy industry. In fact, restrictions on “all other industries” are being “seriously lifted.”

    This, of course, is glossing over the truth dramatically. Members of the U.S. congress have pressed for tougher requirements on Chinese takeovers and disclosure. Chinese investors have in several instances been refused permission to proceed with merger deals (which, incidentally, would reduce the deficit), normally on national security grounds, particularly in areas related to chip technology.

    But Trump has had no time for such details on this trip. He’s toured the Forbidden City politely, and says he and Melania have been enjoying the hospitality of Xi and his wife, the popular singer Peng Liyuan.

    Chinese officials have decided to trump Trump. The visit is a “State Visit Plus,” senior Chinese officials say, smartphone-plus language that will surely please a man who enjoys both flattery and very basic hyperbole.

    Trump knows how to play nice and flatter vaguely, too. Xi is coming off “his great political victory,” he said ahead of his trip to Beijing. This referred, of course, to Xi’s reappointment as the head of the Communist Party at the recent party congress, which left no rivals and no heir apparent.

    Xi referenced the fact that “Xi Jinping Thought” has been enshrined in the very essence of the Communist constitution when he spoke after Trump. He prefaced part of his address to the attendant executives: “Let me share with you my thoughts …”

    Those revolved around the same “new era” ideas that Xi expressed at the Communist Party congress: that while still growing at 6.9%, China’s economy is slowing, “being upgraded,” and shifting from high-speed to high-quality growth; that the country is committed to reform and opening up industries like finance; that state-owned enterprises will be forced to change.

    On this occasion, there was another point that the China-U.S. business cooperation has “great potential,” with many more areas “for economic cooperation rather than competition.” This is surely correct.

    There was little of the doubting of the relationship that Trump expressed. “It’s natural we may have differences from time to time,” Xi said. “The important thing is we act in the spirit of mutual respect and mutual understanding.”

    In fact, although Trump has pulled the United States out of numerous international pacts and has suggested higher tariffs on foreign goods, Xi said the president has helped China-U.S. trade. “You are a strong driving force for economic cooperation between our two countries,” Xi said. He may be wrong on that. I will let you decide!

    One of Xi’s subtexts, of course, is that China and the United States are peers. They deserve to be on the same stage: leaders, economies, superpowers.

    Xi, like Abe in Japan, noted the international nature of the auto industry. I guess it’s a visceral industry that’s very obvious to count: cars on the road.

    U.S. Big Auto in the form of General Motors (GM) , Ford (F) and Fiat Chrysler (FCAU)made and sold over five million vehicles in China, Xi noted — bigger than their combined sales in other parts of the world.

    Chinese companies in all industries have also directly created more than 140,000 jobs within the United States, Xi said.

    Trump flattered Xi with clear reference to his supremacy as the most-powerful Chinese leader since Mao Zedong. When it comes to dealing with the “rogue regime” of North Korea, “China can fix this problem quickly and easily,” Trump asserted.

    That’s not true, either. China, which is equally frustrated with the antics of Kim Jong-un, would have taken care of the problem already if it was an easy fix. But Trump absolved himself of responsibility for dealing with a problem he has escalated through inflammatory language.

    Trump has already visited South Korea, a visit to the demilitarized zone there done in by fog. He goes on to the meeting of 21 heads of state of the APEC nations in Danang, Vietnam, where he also plans on reacquainting himself with Vladimir Putin. Trump will “call on Russia to rein in this potentially very tragic situation,” he explained.

    In Beijing, he asked for Xi’s help. “I’m calling on China and your great president,” Trump said, to work on the complete and permanent denuclearization of North Korea.

    “If he works on it hard, it will happen. There’s no doubt it,” he said to more applause. “You know what I mean.”

  • China’s New Leaders Are No Threat to President Xi

    China’s New Leaders Are No Threat to President Xi

    China’s new roster of top leaders have shuffled into their places on the red carpet for their curtain call, the procession leaving no question as to who is in charge. President Xi Jinping has been reappointed to head the Communist Party, with no one waiting in the wings as his nominated heir.

    [The original of this story appears as my regular column on Real Money for TheStreet.com. Click here for the full story on TheStreet.]

    What’s more, not one of the new members of the Politburo Standing Committee, China’s cabinet, is under the age of 60, meaning none of them is likely to succeed Xi when and if he stands down at the end of his second term in 2022.

    It’s a highly unusual move, unprecedented in recent years, leaving Xi to continue his push for reform and fight against corruption unquestioned. Critics worry that Xi’s “rule” has evolved into a dictatorship, the president eliminating rivals who question his positions and squelching stories about his family’s amassed wealth.

    Xi has also presided over rapid growth in China’s military capability and backed a muscular stance over its claims on territory such as the resource-rich South China Sea. China’s island building near the shores of the Philippines, Malaysia, Brunei and Vietnam has been ruled illegal by an international court in the Hague. But such is China’s economic clout that, bar a military flyby or two, no one has done anything at all about it.

    The new Politburo Standing Committee has seven members ­– it has had anywhere from five to nine in the past. Premier Li Keqiang also retains his role, something that wasn’t at all certain to happen when doubts over his leadership surfaced last year. And there was no place for Xi’s protégé Chen Min’er, the current head of the megacity of Chongqing.

    Chen is one of two likely candidates, as it now stands, to succeed Xi when he eventually steps down. But he did not leap straight into the Politburo Standing Committee — a move Xi made when he shot to prominence in 2007.

    Neither did Hu Chunhua, the current Communist Party Secretary of China’s richest and most-productive province, Guangdong, across the border from me here in Hong Kong. Hu is another frontrunner to succeed Xi, but both Hu and Chen joined the 25-member Politburo that sits one rung down the leadership ladder from the Politburo Standing Committee.

    So it’s anyone’s guess who will emerge over the next half decade to step forward as Xi’s replacement.

    The new Politburo Standing Committee members are, in order of seniority:

    — Xi’s current chief of staff and close ally, Li Zhanshu, 67, who is likely to become head of the National People’s Congress;

    — vice premier and former head of Guangdong Province Wang Yang, 62, likely to become chairman of China’s top political advisory body, the Chinese People’s Political Consultative Conference.

    — political theorist Wang Huning, 62, confirmed as new propaganda chief and secretary of the Central Committee Secretariat;

    — new anti-corruption chief Zhao Leji, 60, who steps up from heading the Communist Party’s organization department;

    — long-time Shanghai politician and current Shanghai party chief Han Zheng, 63, the new executive vice premier and an ally of former president Jiang Zemin.

    The new leadership of the Central Military Commission, which oversees the military, were also named, as well as the 25 members of the broader Politburo.

    The powerful Wang Qishang, Xi’s current right-hand man in his fight against corruption, has retired from the Politburo and even the Central Committee, an elite body beneath the Politburo and now comprised of 204 people. Wang is already 69, past the unwritten age of retirement at 68 for officials, and is retiring from public life.

    Xi, now 64, has already evolved into the most powerful Chinese leader since Chairman Mao Zedong. That became black-and-white fact at this year’s gathering, the 19th National Congress of the Communist Party, which has come to conclusion a week after it began.

    Only Chairman Mao managed to get himself written into the Communist constitution while still in power. That is now also the case with Xi, who had already been identified as being at the party’s “core.” He has now had his “Xi Jinping Thought for the New Era of Socialism with Chinese Characteristics” written into the Communist Party’s constitution while in charge. The parallel with Mao Zedong Thought is clear.

    Every Communist leader is expected to come up with his own take on Marxist-Leninist thought. Deng Xiaoping, the reformist who started the opening up of China’s economy, has also had his Deng Xiaoping Theory enshrined in the Communist Party charter, but well after he died. Mao made China independent; Deng made it prosperous; Xi promises to make it strong.

    Xi’s version calls on China to seize its “new era” of development and take its proper position internationally, in maintaining world peace and economic stability. China is ready, he says, to play a greater role in building “a common destiny of mankind.”

    The elevation of “Xi Jinping Thought” to such lofty status leaves him ideologically unquestioned in his push to bring into existence the China of his vision. His immediate predecessors Hu Jintao and Jiang Zemin don’t have their names attached to their Communist theory.

    Xi has been ruthless in his push to the top, and equally quick to move to ensure he stays there unquestioned. He has used the corruption battle to weed out “tigers and flies,” officials large and small, with 18 members of that elite 200-odd member Central Committee being taken down since he came to power in 2012.

    Corruption is rife throughout the Communist Party structure, with so much power put in the hands of even petty officials down to the district level. They’re the guys I see gambling huge stacks of chips in Macau, wearing cheap suits and smoking no-name cigarettes. But Xi has also used the witch hunt to dispatch any rivals and enemies, making him more feared than respected within his own party.

    Xi will be 69 at the time of the 20th National Congress. That will see the end of his second term, and there’s speculation he may attempt to stay on for a third.

    I would bet that Xi does not seek a third term. He’s a stickler on precedent and protocol — a characteristic that has lent credence to his leadership. What he will, however, do is remain on in a position (or two) of power. Goodness knows, he’s got enough of them.

    Xi is President of the People’s Republic of China, General Secretary of the Central Committee of the Communist Party of China, Chairman of the Central Military Commission, leader of the Leading Group for National Defence and Military Reform of the military commission; leader of the Central Leading Group for Internet Security and Informatization; leader of the Leading Group for Financial and Economic Affairs; and the leader of similar leading groups for Comprehensively Deepening Reforms, Taiwan Affairs, Foreign Affairs, Party Building, Deepening the Study and Practice of the Outlook of Scientific Development, and of the Central Coordination Group for Hong Kong and Macau Affairs.

    Shorthand: president, chief Communist, chief of the Armed Forces, and the head of reform of the military, cyberspace, the economy, the Communist Party, foreign affairs, science, Taiwan, Macau and Hong Kong. Phew.

    As the shrewd may detect, the Communist Party is big on titles. Xi, while stepping down as president, will surely find a few that help him to retain power behind the scenes. He’s in charge for the next five years — and if he stays healthy, probably many more to come.