The more I’ve watched the policy unfolding in Washington DC since Trump was inaugurated, the more I have been thinking about how this might be received in Beijing. In the (admittedly long) essay below, I lay out the current state of my thoughts. These are definitely interesting times.
Part I: Tariffs
The past three months, since the inauguration, have been tumultuous here in the U.S. and around the world. The pace of the administration has been dizzyingly fast and its results astonishingly unsettling. Many of the administration’s initiatives are frightening. No other President in the history of the U.S. has begun his term by undertaking so many attacks on the established order. Trump’s opening gambits include:
· Reducing the size of the federal workforces by an order of magnitude.
· Defunding as many existing institutions as he can find, including those that are generally viewed as non-partisan, such as government labs, universities, National Public Radio, the Smithsonian, etc.
· Removing verbiage that he perceives to be “WOKE” from government websites.
· Removing policies that he perceives to be “WOKE” from any and all organizations that receive government funding, and from some that don’t.
· Stopping immigration.
· Sending so-called migrants back to where they came from or to prisons in other countries.
· Pardoning felons and emptying out our prisons.
· Fighting our courts.
· Recruiting MAGA loyalists to run for positions in the House and the Senate.
· Eliminating any and all checks and balances.
· Trying to take dominion over Canada, Greenland, and the Panama Canal.
· Insulting as many people as he can.
· Demeaning foreign leaders in public.
· Currying favor with Putin.
· Lobbying to get into the “Dictators’ Club.”
· Entertaining oligarchs and dictators at Mar-a-Lago.
· Playing golf with wealthy capitalists.
· Helping his buddies get richer by telling them in advance about tariffs that he intends to institute, to guide them in their investments in the market.
· Getting even with his perceived enemies.
· Trying to dismantle Pax Americana, NATO, the United Nations, the WTO, as well as many of our economic and security alliances.
· Putting an end to various industries EV, solar, and wind.
· Getting rid of regulation, especially regulation designed to protect our environment and forestall global warming.
· Cutting illegal deals with law firms, pursuant to which they will pay him protection money in exchange for his promise not to pursue them for malfeasance.
· Restricting the right to vote and, as is currently in process in the North Carolina judge’s election, attempting to cancel votes that have been cast to ensure a desired outcome.
· Removing the U.S. from the World Health Organization and the Paris Accord.
· Threatening the Federal Reserve.
· Undermining the public school system in deference to private schools.
· Raising money through tariffs to finance future tax cuts for the wealthy.
And the list goes on.
Tariffs have been a major policy initiative. In fact, Trump has set in motion more tariffs on goods from more countries than any President in U.S. history, even to the extent of directing tariffs at countries you have never even heard of and which in some cases may not even exist. In one noteworthy case, the only inhabitants of the country in question turned to be penguins, which have never manufactured goods for export.
Economists around the world are puzzling at all of this and trying to figure out “Why?”. Here are some of their theories:
1) As implied above, to raise money for the federal budget that could enable him to reduce taxes for the wealthy.
2) To create for himself leverage that he can employ in his negotiations with other countries, along the lines of: “If you stop the flow of fentanyl into the U.S., [notwithstanding how much fentanyl actually enters the U.S. through that country] we will retract the tariff we just imposed on your exports to our country.” Those who propose this theory tell us that if we just read his book, The Art of the Deal, we will understand. Possible. More on that later.
3) Impressing the world with his own strength and process, along the lines of “See what I can do.”
4) Bringing manufacturing back to the United States. However, if this were his intent, he would have already put forth a plan to reestablish manufacturing here, and so far, he hasn’t done that. Also, because to do so would require several years, he would hold off on putting these tariffs in place until we had already made some progress in that direction.
5) Just because he can. Finally, there are many who view him as a sort of a Cat in the Hat, and that his tariffs are analogous to Thing One and Thing Two. This theory would suggest that he enjoys chaos in and of itself. It is not a means to an end, it is an end unto itself. Along this line, many pundits and experts in a variety of fields have suggested that he might be the Manchurian Candidate [an unwitting dupe of a foreign power who has been brainwashed into bringing down the U.S. government] or the Anti-Christ, sent by God to sow chaos as the world ends.
6) In addition, another “Trump-watcher” gave me some insight into why Trump initially put a tariff on the exports of virtually every single country on earth. It’s very Trumpian. He wanted to get their attention. In the coming weeks, he can remove the tariff from each and every country that decides to side with us and against China. Or that promises to build a factory in the United States.
How does the world see all of this? Well, Trump has the world confused. Other world leaders seem to think that he is:
· A clown
· Mean and vengeful
· Not too smart
· Narcissistic
· Potentially crazy
Trump has directed the absolute highest tariffs in his program at China. What do the leaders of the Chinese Communist Party (CCP) think about Trump?
They tend to think of him as weak, buffoonish, histrionic, and unpredictable. Also, they believe he is inconsistent, which, combined with his narcissism, will render him malleable in the long run.
In the short run, the Chinese leaders will just dig in, stand their ground, and prepare for the long run. This approach will take many forms. They will describe Trump as an unpredictable buffoon in their propaganda, both vis-à-vis their own people and to people in other countries as well. Because the China People’s Daily Online, the CCP’s official newspaper, is published in 15 languages as well as Mandarin and seven ethnic minority languages in the People’s Republic, its reach is quite broad and will be uncontested if Trump succeeds in his efforts to de-fund Voice of America, the U.S.-backed news service that provides information in 50 languages.
The CCP leaders will seek to fill the void that Trump has created with his insults to and isolation of other countries. They will pour even more money into technology than ever before—at the same time that Trump is defunding R&D in the U.S. and preventing scientists and engineers from other countries from emigrating to the United States. And they will refuse to negotiate, because to cave into his demands would cause them to lose face.
And as the CCP watches Trump insult Zelensky in public as he pulls back from defending Ukraine, they will feel emboldened to invade Taiwan.
What will Trump’s tariffs accomplish?
I don’t not believe that the tariffs will “Make America Great Again.” In the end, they will weaken us and make us poorer. Foreign students will not want to come to the U.S. to study engineering and science, and we will fall behind in technology. We will fall behind other countries in healthcare and environmental protection and alternative energy production. The tariffs will drive up the cost of our national debt and drive down the value of our dollar. And they will isolate us.
As Rush Doshi and Kurt Campbell point out in their recent Foreign Affairs article, “Underestimating China,” Trump is causing other countries to hate us. We are losing our allies. Without allies, we will not be able to compete against China.
Part II: Decoupling from China
The facts are astounding: In 2024, China achieved a $1,000,000,000,000 ($1 trillion) trade surplus vis-à-vis the rest of the world, while the U.S. suffered a $350,000,000,000 ($350 billion) trade deficit vis-à-vis China. In the year 2000 the U.S. accounted for 25% of the world’s manufacturing, while China accounted for only 6%. Experts estimate that by 2030, we will have traded places: China will account for 25% of the world’s manufacturing and the U.S. only 6%. In a real way, U.S. manufacturing has been “hollowed out” in the past quarter century as I wrote in a recent newsletter. The manufacturing belt has been turned into a rust belt; former manufacturing workers are now flipping burgers and driving for ride-share services; and many people have just plain dropped out of the work force. Homelessness and deaths from despair (substance abuse and suicide) are skyrocketing.
As if that weren’t frightening enough, China has made amazing progress in science and technology. In some areas they are now only marginally behind us (e.g. semiconductors), in other areas they are neck and neck with us (e.g. AI), and in others they are definitely pulling ahead (e.g. electric vehicles).
And in some key areas China has achieved almost a monopolistic control of things that we will need to keep pace—in particular, rare earths, which are necessary in a number of other areas, in particular semiconductor and electric vehicles.
All these things are of concern to Americans for a variety of reasons, most of which are obvious. But one reason is particularly worrisome: by virtue of law in China, all Chinese, both entities and individuals, are required to share any relevant technology with the Chinese army, the PLA.
As a result, many people are talking about “decoupling,” and to the extent that they feel that decoupling would be too difficult and burdensome, they have reduced their goal from “decoupling” to “derisking.” I’m not sure there is a substantive difference, only a difference of degree.
In my view, there are fundamentally three different constituencies driving this, and each has its own unique motivation. The business community has finally admitted that the CCP has invariably taken advantage of them with the result that they have lost in the end. What initially sounded like “win-win” has turned out to be two wins for the CCP and none for U.S. business (the first being loss of market share in China and the second being loss of market share globally).
Second, government officials are angry because of the damage that China has done to our economy. This is particularly annoying to those older members of our government who take great pride in have enabled China to join the WTO in 2001.
And third, the American working class is angry. They like being able to buy things at bargain prices from China (with the assistance of Walmart and Amazon), but they are unhappy about all the manufacturing jobs that have moved from the U.S. to China, leaving them either unemployed or driving for Uber.
In fact, we should all be worried (if not angry), over the “hollowing out” of our manufacturing sector, as well as the fact that many of our best technologies have found their way, often illicitly, into the hands of the PLA. However, not everybody in the U.S. is in favor of “decoupling.” The list of those against it include: 1) libertarians, 2) people who abhor the concept of industrial policy, and 3) the army of economists who favor “free trade,” in many cases at all costs. I understand all three of them. However, I feel that all three of them are sacrificing our well-being on the altar of ideology.
That said, there are many very practical reasons to be against decoupling:
1) It is almost impossible to accomplish. Supply chains are long and complicated. And many of the (Chinese) companies involved are borderline anonymous. They are difficult to research as they often change names and ownership.
2) Our export controls are at best insufficient. For instance, Nvidia chips turn up in electronics bazaars around the world. In many cases, nobody knows how they got there.
3) Cutting off the availability of relatively inexpensive goods from China will cause inflation, placing an even greater burden on the people who lost their jobs when the factories in which they worked moved to other countries, including China.
4) Ultimately, decoupling requires that we rebuild our manufacturing sector. This will require that we rebuild a number of other institutions as well, including our education system. In short, we have lost many of the skills that will be necessary to the revitalization of our manufacturing sector. When an entrepreneur started a non-profit all-U.S. clothing company, she found only one mechanic (who was 78 years old) to maintain the machines and only one person who knew how to thread them. Restoring these skills and career paths requires a widespread reconfiguration of the U.S. education system, even as the Department of Education is being dismantled.
None of this can be done under the current administration. We will have to wait for a different administration.
And by then, it could be too late.
On the other hand, as Noah Berman points out in recent article on “the benefits of tariffs” in “The Wire,” we may have no choice. The CCP has always seen us as an enemy. It does not want to remain “coupled” to the U.S., except to the extent that China can continue to benefit from appropriating our technology, and that era may already be over.
Part III: On Negotiations
Part of our problem in dealing with the CCP is that we really don’t know how to negotiate with them.
Or, to put it differently, and perhaps more fairly, we have a different negotiating style, and it doesn’t mesh well with theirs.
I would characterize the CCP’s negotiating style as being based on The Art of War, whether they know it or not. The Art of War was written by Sun Tzu, a Chinese warrior and a philosopher, about 2,500 years ago. Among other things, The Art of War stresses “victory without direct fighting” is the best way to win because nobody on your side dies. Sun Tzu recommends taking a psychological approach rather than a physical one. This involves sizing up your enemy. He stresses patience. Wait until your enemy’s state of mind is poor and yours is optimal. Make use of spies to gain insight into the enemy’s state of mind. You are much better off deceiving your enemy and winning through deceit than actually fighting.
In 1982, the famous sinologist, Lucian Pye, who at the time taught at MIT, published a short yet very useful book entitled Chinese Commercial Negotiating Style. I read it before my wife and I moved to China, but I didn’t take it very seriously. In his book, Pye stresses how the CCP uses psychology to best their “enemy” in negotiations. In particular, the Chinese negotiators size up your personality and mental state before even beginning. Second, they make ample use of various stalling techniques. Using such techniques, they wait until you are exhausted from waiting and hungry to close a deal. They make ample use of ambiguity and deceit, in effect to build false expectations. They may accuse you of being disingenuous to demoralize you and make you feel as if you owe them something. They may make unacceptable demands and give you the impression that you have no choice but to accept them. They will wear you down over time. Most importantly, they will identify their leverage (what they have that you want) and seek to give you the impression that you have nothing that they want. They believe that every negotiation must end with a winner and a loser. Their goal is to ensure that they are the winner.
When I read that, years ago, I thought that Lucian Pye must have been extremely jaded. How could people behave that way? I doubted that they could.
But within my first full year on the ground in China, negotiating with the CCP, I discovered that indeed they could. And did.
Part of the problem was that I had been schooled in “Getting to Yes.” Getting to Yes, by Roger Fisher, William Ury, and Bruce Patton, was published in 1981 and its authors were instrumental in the Harvard Negotiation Project, which became famous in the U.S. in the course of the 1980s. Most of the businesspeople in my generation attended a seminar at some point early in their career based on this book.
Getting to Yes proposed the idea that in a negotiation, it is incumbent on each “side” to seek to uncover the needs of the other side and that the two sides, working together cooperatively, should try to craft an agreement that satisfied both sets of needs. Hence, “getting to yes,” which ultimately gave rise to the oft-uttered phrase “win-win.”
I can’t tell you how many times my Chinese negotiation counterparts used the phrase “win-win.”
That said, none of them had ever read (I mean this figuratively) Getting to Yes. In every case, they were targeting an end-result that entailed my losing and them winning. And they made generous use of the techniques elucidated by Lucian Pye in his book from 40 years ago. In retrospect, I think it is more likely that they had read Pye’s book than Getting to Yes.
In any case, they made ample use of the techniques that Pye described: manipulation and deceit. Furthermore, after the “contract” was signed, I’m convinced they burned it. And then, every morning they reassessed their leverage and mine, and if theirs had increased compared to mine, they simply changed their behavior in ways that benefitted them and disadvantaged me. And if their reassessment brought them to the opposite conclusion, namely that mine had increased while theirs had diminished, they fully expected that I would do the same to them, and thought me a fool when I didn’t.
For a more detailed description of how that dynamic played out in practice, read my book, The China Business Conundrum: Ensure that Win-Win Doesn’t Mean Western Companies Lose Twice. It’s available on Amazon.
Part IV: Conclusion
It is difficult to reach a conclusion in a world dominated by a leader who is as unpredictable and inconsistent as ours is today. My tentative conclusions include the following:
1. Trump’s approach to tariffs will do us more harm than good, and it already has.
2. The question of whether or not we should be decoupling from China may have already been answered. China does not believe that cooperation with the U.S. is either desirable or possible. The CCP has already acquired all our knowledge and we are now only in their way as they rise to the top.
3. Trump’s style of negotiation is—ironically—in some ways Chinese: keep the opponent off balance, ruthlessly apply whatever leverage you have, demean and deceive your opponent, and seek to win at all costs. What good could possibly come out of a negotiation where both parties employ this strategy? It’s true that practitioners of win-win will lose when confronted by “win at all costs”, but when both parties are committed to winning at all costs, can anyone win at all? Especially when both have nuclear warheads?
This last frightening thought leads to the possibly forlorn hope that our elected officials might grow a badly needed backbone and refuse to accommodate such a dangerous strategy of nuclear-armed chicken. The Congress could take back its power of the purse and strike down the tariffs. It’s difficult to see what winning means now, but insofar as the status quo has been so thoroughly upended, decision-makers need to define how the U.S. could correct the failings of its earlier policies and mend the fences that have been so abruptly bulldozed. If, that is, it’s possible. Otherwise, we will need to live in the mess we have created.
Photo by author.
Well done. I am sure the Stanford audience this evening will be interested in your thoughts on tariffs, trade and negotiating with China.
Very, very insightful and informative,