This article is published here as a preview of the week’s Global Risk-Reward Monitor.
Republican presidential candidate Donald Trump on March 18 invited Chinese automakers to build plants in the United States, offering China the same deal that Ronald Reagan extended to Japan in the 1980s.
The former president vowed to impose a 100% tariff on Chinese car imports either directly from the mainland or from intermediaries like Mexico. But he added, “If they want to build a plant in Michigan, in Ohio, in South Carolina, they can, using American workers, they can. They can’t send Chinese workers over here, which they sometimes do. But if they want to do that, we’re welcome, right?”
Addressing Chinese leader Xi Jinping, Trump said, “You and I are friends.”
Trump’s offer to China went unreported in virtually all media. Mainstream US media attacked the former president for using the term “bloodbath” to describe the impact of prospective Chinese imports on the American auto industry, implying that he had threatened actual violence if he was not elected. But the transcript of his remarks at a Dayton, Ohio, rally makes clear that he was referring to industry conditions.
Trump told the Dayton audience:
Let me tell you something to China, if you’re listening, President Xi, and you and I are friends, but he understands the way I deal, those big monster car manufacturing plants that you’re building in Mexico right now, and you think you’re going to get that, you’re going to not hire Americans and you’re going to sell the cars to us. Now, we’re going to put a 100% tariff on every single car that comes across the line, and you’re not going to be able to sell those cars, if I get elected…. And I’ll tell them if they want to build a plant in Michigan, in Ohio, in South Carolina, they can, using American workers, they can. They can’t send Chinese workers over here, which they sometimes do. But if they want to do that, we’re welcome, right? But they’re not going to build them in Mexico and they’re not going to do that.
Industrial automation is accelerating in China and lagging in the United States. According to Zhang Weiwei, a professor at Fudan University, China already has 10,000 applications of 5G to the industrial Internet. Compare that with fewer than ten in the United States, by my informal count.
China now installs more industrial robots and graduates more engineers than the rest of the world combined. In 2023 it became the world’s largest auto exporter. Electric vehicles priced as low as $9,700 for the well-reviewed BYD Seagull subcompact – comparable to the 1908 Ford Model T in its affordabililty and wide appeal – are creating new markets for autos in the Global South.
China meanwhile has extended its lead in 5G broadband. Zhang reported that China now has 3.37 million 5G base stations out of a global total of 4 million – 85% of installed capacity.
The United States may never be able to match China’s combination of skilled personnel, infrastructure and giant economies of scale. It’s easier to let Chinese companies bring industrial automation to the United States than to try to catch up after the fact. That’s the path of least resistance, and one that Trump has opened up.
Donald Trump’s approach to China has never been ideological. In an interview on October 6, 2023, Trump hinted at the possibility of striking a deal with the world’s second-largest economy, leaving the door ajar for future negotiations. When asked by interviewer John Solomon about a strategy for decoupling from China, Trump’s response reflected a pragmatic stance:
At least partial decoupling – we’ll see. They may very well turn out to be fine. It’s very popular politically – “We’re going to decouple!” – but I think I had a very good relationship with China.
However, the notion of decoupling remains elusive. Given that the US now imports more capital goods than it manufactures domestically, any attempt at decoupling would necessitate importing even more capital goods to facilitate increased domestic production. Trump himself acknowledged the political allure of decoupling while highlighting its practical implausibility.
Trump’s approach to China exhibited nuances. When ZTE, China’s second-largest telecom equipment producer, violated US sanctions against Iran in 2018, Trump intervened to save the company from collapse by allowing it to pay a hefty fine and retain access to US chips. Yet, Trump’s stance toward Huawei, particularly regarding restrictions on chip purchases, fluctuated, eventually leading to severe consequences for Huawei’s smartphone business but minimal impact on China’s broader technological trajectory.
Despite Trump’s tariffs on Chinese imports, motivated partly by his desire to reduce the US trade deficit, the deficit continued to widen. The Biden administration maintained these tariffs and bolstered technology controls, including a ban on exporting high-end semiconductors to Chinese buyers and persuading allies to cease supplying China with semiconductor production equipment.
If Chinese auto companies build EV plants in the United States, it will be harder for Washington to blockade China’s chip industry. EV’s require up to 4,000 chips of increasing degrees of sophistication. In effect, an EV is a computer on wheels. An auto deal might portend a broader thaw in US-China economic relations.
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March 20, 2024 at 12:04AM
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Trump invites Chinese to build US auto plants - Asia Times
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