After the Xi-Trump Summit, Focus is on Trade and North Korea
Photo Credit: South China Morning Post
By Wei Luo

After the Xi-Trump Summit, Focus is on Trade and North Korea

Apr. 14, 2017  |     |  0 comments

As the President of the People’s Republic of China Xi Jinping just finished meeting with his US counterpart for the first time in Florida, trade and curbing North Korea’s nuclear ambitions have emerged as the two most pressing issues for the two leaders. Although issues like the political status of Taiwan and maritime territorial disputes remain important for US-China Relations, whether these two most powerful nations would successfully uphold global economic stability and prevent the proliferation of weapons of mass destruction could decide if this bilateral relationship remain cooperative or antagonistic for at least the rest of the Trump Presidency.

Therefore, in order for the 21st century’s most important bilateral relationship to move towards more cooperation, trade — especially in reducing the US trade deficit, along with increasing Chinese investments in the US to create more jobs — and the multilateral dismantlement of the North Korea’s nuclear ambitions are the likely positive starting points.

US-China Trade

As President Trump stated both during his elections campaign and afterwards, one of his most pressing concerns regarding US-China relations is trade, especially the US trade deficit and the perceived job losses the US manufacturing sector suffered resulting from trade with China, despite the fact that the latter has recently surpassed Canada to become the number one trading partner of the US.

For example, starting in the 1990s, the US trade deficit with China grew exponentially, reaching nearly USD 350 billion in 2016 largely due to China’s relatively cheap labor cost. This is why MIT labor economist David Autor estimates that from 2000 to 2007, the US lost about a million manufacturing jobs to China. On the other hand, according to the US Department of Commerce, US exports of goods and services to China supported an estimated 251,000 jobs in the US in 2014. In fact, American consumers are also the biggest winners from cheap imports from China and other countries.

Nevertheless, although most Americans benefit from international trade, this has not stopped then-Presidential candidate Trump from accusing China of “raping” the US by stealing jobs through currency manipulation and other means. In fact, even after getting elected, President Trump has stated that if China refuses to negotiate a deal with his administration favoring American workers, his administration should not abide by the One-China Policy with respect to Taiwan, which is one of Beijing’s “core interests.” President Trump later agreed to respect the One-China Policy and has so far not labelled China as a currency-manipulator.

Since he made “getting a better deal with China” by having manufacturing jobs return to the US as one of his main promises to his constituents, he would need to deliver this promise to his voters, including heavy industry workers in the Rust Belt region who believe that their jobs are threatened by foreign competitions. This is why trade — especially regarding manufacturing — would most likely remain one of the most pressing issues for US-China relations and also directly relate to the Trump Administration’s political legitimacy, especially if he wants to continue upholding his image as a strong negotiator and be reelected in 2020.

In this sense, in order to improve bilateral relations, Beijing could start by targeting the needs of the American working class, especially those living in the Rust Belt stretching from Illinois to the US Northeast. In fact, as the Trump Administration seeks to have manufacturing return to the US, such a strategy would also corroborate with Beijing’s “Going Out” Policy, which is now part of the One Belt One Road (OBOR) initiative to revitalize trade and infrastructure investment along — but not limited to — the ancient Silk Road.

As part of the OBOR, both Chinese private firms and state-owned enterprises (SOEs) could create jobs in countries where they decide to invest in, as long as these firms respect the laws and cultures of their host countries. For example, China’s CRRC Corporation is about to finish a 204,000 square foot rail car manufacturing plant in Springfield, Massachusetts. The $95 million plant will employ 150 workers and supply subway cars to both the Boston and Los Angeles metros starting in 2018. Another USD 100 million plant with a space of 380,000 square foot will be built in Chicago, Illinois, which is part of the American Rust Belt. The facility will employ 170 workers and begin supplying subway rolling stocks for the city of Chicago in 2019.

The two CRRC facilities mentioned above are just a small example where US-China bilateral trade does not have to be a zero-sum game over manufacturing jobs. When China’s labor cost was significantly cheaper than those of developed countries and needed foreign direct investment, it was natural under a globalized world for multinational corporations to invest in China to take advantage of the country’s relatively low labor cost. In this sense, consumers in developed countries become one of the biggest winners in international trade.

However, given that the US is still recovering from the 2008 financial crisis, while labor cost has risen dramatically in China, the demands of American workers for the return of certain manufacturing jobs and a more balanced trade between the two countries should be considered by Beijing in order to win the trust of not only the Trump Administration but also American workers. Since President Trump himself entered the White House based on Americans who believe that their future employment opportunities are threatened by international trade, now could be an opportunity for Beijing to demonstrate to these workers that enhancing US-China relations could bring a number of those jobs back to the US through investment.

In addition, by building rolling stock and other assembly plants in the US, not only could Beijing’s SOEs and private firms address the demands of Americans workers, but they could also advertise Chinese brands. Specifically, Chinese firms like the CRRC could also potentially assist the Trump Administration to revitalize America’s much-needed rail infrastructure with their experience at home and in other parts of the world. American workers’ gains would not mean the loss of Chinese workers, as Chinese-made components and engineering would still be needed alongside American ones.

Also, if these two facilities in the US could internalize American-made sensor and other automation technologies — in which the US still holds an edge over China — the CRRC could potentially help American high-tech firms export their valuable technologies to CRRC trains built for the China and other parts of the world, boosting American exports. As a result, the CRRC’s two facilities in the US are an example of how Beijing could address the Trump Administration and its blue-collar supporters. In return, American workers would indirectly support China’s OBOR initiative by helping to advertise Chinese products.

Although the realities on the ground, including the process of negotiations, and how certain high tech sectors in the US are off limit to Chinese investments due to national security concerns, are complicated and time-consuming, Chinese investments and subsequent job creation in the US could indeed be a win-win solution for both countries moving forward.

In fact, following the two-day summit, President Xi agreed to a 100-day plan to discuss how to reduce the US trade deficit with and boost US exports to China. The Chinese side is also interested in reducing its trade surplus in order to curb domestic inflation, which would be detrimental to Chinese consumers. As Xi’s administration is trying to shift the Chinese economy away from export reliance toward more domestic consumption, both the Trump and Xi Administrations have shared interests in making this 100-day plan to work. As a result, a US-China deal on trade based on this 100-day plan could benefit both Chinese middle class consumers — who are key to domestic stability in China — and American workers.

North Korea’s Nuclear Program

While achieving a more balanced trade with China and creating more jobs for Americans by attracting Chinese investment in manufacturing could help strengthen US-China economic ties, the two countries also have common interests in geopolitics. Although issues like the political status of Taiwan and territorial disputes in the East and South China Seas have pitted the status quo and rising superpower against each other, Beijing and Washington still share an overarching goal in getting rid of North Korea’s nuclear weapons and preserve stability in the Asia-Pacific, so that the post-World War II prosperity and regional security could be preserved.

North Korea’s nuclear weapons program and its bellicose foreign policy is arguably the single most significant challenge to the post-Cold War order — which both the US and China have benefitted from — in the Asia-Pacific. Currently, time is on North Korea’s side as the Hermit Kingdom has developed mobile solid fuel ballistic missiles capable of striking Seoul, Tokyo, Okinawa, Beijing, etc. Within a few years, the DPRK could develop an intercontinental ballistic missile capable of striking the continental US. This is why the Trump Administration has warned that if Beijing does nothing to stop the Pyongyang’s nuclear weapons program, Washington could take unilateral military actions to achieve this objective. In fact, some have interpreted the recent US cruise missile strike against a Syrian military airfield during President Trump’s dinner with President Xi as a demonstration that the US is capable of conducting military strikes against the DPRK and its nuclear facilities.

Given that the US, China, and the ROK share an overarching goal for a denuclearized Korean Peninsula, maybe it is time for Beijing to cut all economic aid to Pyongyang.

Ultimately, the reason why North Korea has been able to make progress on its nuclear weapons program is because the US and China have different strategic objectives regarding the future of the Korean Peninsula. While the US considers a unified and democratic Republic of Korea (ROK) under the leadership of Seoul allied with the US and Japan as the ideal endgame, China considers the North Korean regime as a strategic buffer against the US, South Korea, and Japan. For Pyongyang, the ruling Kim family fully understands that while it is in an unequal quasi alliance with Beijing, Beijing still sees Pyongyang as a valuable strategic asset against US military presence in Northeast Asia.

On the other hand, should the North Korean regime collapse, Beijing would not only face a refugee crisis, but would also have to deal with a potentially hostile unified Korea with US forces right across the Yalu River. This is why Pyongyang has been able to take advantage of Beijing’s need by developing its own nuclear weapons without any consideration of Beijing’s interests in regional stability, including the need to maintain stable relations with the US and South Korea, which are Beijing’s largest trading partners. However, while Pyongyang’s nuclear tipped missiles are currently pointed at South Korea and Japan, they could also be pointed toward Beijing.

Therefore, in the words of Michael D. Swaine of the Carnegie Endowment for International Peace, what the US and China should aim for is the eventual unification of non-aligned Korea under the leadership of Seoul in the long run. Under this proposal, should the two Koreas ever become united, the US would offer to withdraw nearly all of its troops from the Korean Peninsula. Since the deployment of US forces in South Korea is meant to deter North Korean aggression, the disappearance of the North Korean regime would make the presence of US troops on the Korean Peninsula superfluous.

However, as opposed to Swaine’s call for a completely neutral Korea, in order for South Korea to possibly agree to this potential post-unification plan, Beijing should allow for the US-ROK mutual defense treaty to remain, meaning that should the post-unification Korea be attacked by a third party, the US military would still be committed to aid Seoul from its bases in Japan. Nevertheless, since a unified Korea would not possess nuclear weapons, while it takes time for US troops in Japan to respond to a Korea under attack, the unified Korea in this case would have few incentives to provoke its nuclear-armed neighbors — including Russia and China — in the first place. Also, such provocation by the supposedly unified ROK itself would not necessarily invoke the US-ROK mutual defense treaty, as the US would only be legally bounded to assist its treaty ally if the latter were to be attacked by a third party first.

Therefore, although the recent Xi-Trump summit did not announce specific strategies on how to halt the DPRK’s nuclear weapons program, since the DPRK’s nuclear weapons program is a threat to the US, the ROK, and China, both the Xi and Trump Administrations should start considering the long term solution to the security dilemma over the Korean Peninsula. Although a divided Korean Peninsula has been beneficial to China’s strategic needs in the past, the moment that the DPRK developed nuclear weapons dashed most of the strategic value the DPRK had for China, as Pyongyang has now become a threat to Beijing. Given that the US, China, and the ROK share an overarching goal for a denuclearized Korean Peninsula, maybe it is time for Beijing to cut all economic aid to Pyongyang. If this economic embargo could successfully coerce Pyongyang into completely forgoing its nuclear arms, then Beijing would not even have to deal with a potentially unified Korea.

However, as the past decade has shown, if such coercion fails to denuclearize the DPRK, then Beijing, Seoul, and Washington would simply have to economically isolate Pyongyang to force it to forgo its nukes. If the North Korean regime implodes as a result of a multilateral economic embargo, Beijing, Seoul, and Washington would have coordinate to take appropriate measures to disarm the remnants of the North Korean regime, while addressing the likely refugee crisis through multilateral channels like the UN. Ultimately, since the DPRK is no longer serving the strategic needs of China, the latter no longer needs to protect the former, so Beijing has reason to work with Washington to snatch Kim Jong Un’s nukes from his hands.

On a note of caution, in order for Beijing to agree to enforce the above-mentioned multilateral economic embargo against the DPRK, Beijing would most likely demand the initial removal of the THAAD missile defense system from the Korean Peninsula before seeking both Washington and Seoul to promise that no American troops would remain in the post-unification Korea under Seoul. Beijing currently considers the THAAD to be a threat to its national security, as the THAAD is believed to be capable of monitoring Chinese missile tests from the Korean Peninsula. In return, Beijing would have to figure out how to reassure Seoul that it would not have to worry about China’s rising military and economic capabilities. In doing so, Beijing could also halt its current economic retaliation against Seoul, which was implemented following South Korea’s deployment of the THAAD system, as a sign of reciprocity.

The alternative to Beijing, Seoul, and Washington cooperating to compel Pyongyang into abandoning its nuclear weapons would a nuclear-armed DPRK and the exacerbation of the Sino-ROK and Sino-US security dilemmas. The US could also take unilateral military action — as President Trump has suggested — against the DPRK at the expense of both China and ally South Korea, which could see its capital Seoul incinerated due to its proximity to the Demilitarized Zone (DMZ). In other words, should the status quo over the Korean Peninsula continue, no one could emerge as a winner, as war could occur at any moment. Since the US and the ROK remain China’s largest trading partners, and since the DPRK’s strategic value to Beijing is decreasing, it would be logical for Beijing to reconsider who to partner up with. In the words of Paul Haenle, the director of the Carnegie-Tsinghua Center in Beijing, President Xi and other Chinese policymakers are currently very frustrated with Kim Jong Un.

Therefore, if President Trump could persuade President Xi that the DPRK is no longer China’s valuable strategic asset, President Xi would have a freer hand to compel the DPRK into choosing between long-term global isolation and possible regime implosion from within due to economic hardships, or denuclearization in exchange for international acceptance. Just like reducing the US trade imbalance with China, containing the DPRK’s nuclear ambition is just as urgent for both President Trump and President Xi.

As the world’s two most powerful men built their rapport after their first summit in Florida, now is the time for the two governments to improve their bilateral trust starting from trade and compelling the DPRK to give up its nuclear arms. Whether the two administrations can cooperate to handle these two pressing issues will decide if President Trump and President Xi can build enough mutual trust to establish healthy US-China relations into the 2020s.

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