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A Bull Named Trump in a Shop Called China

CAMBRIDGE – Some of US President-elect Donald Trump’s nastiest attacks have been directed at China. He has accused it of “raping” the United States with its trade policies, and of creating global warming as a “hoax” to undermine US competitiveness. Why, then, are many Chinese policy advisers and commentators sanguine about future US-China relations?

The reasoning seems to be that Trump is a businessman, and, to paraphrase US President Calvin Coolidge, the business of China is business. China, the thinking goes, can work with a swashbuckling deal-maker like Trump better than with a supposedly “ideological” Hillary Clinton.

Many people would be surprised to see Clinton categorized as an ideologue. And there is scant evidence to support the claim that businesspeople somehow embody pragmatism, given that so many powerful US business leaders are committed ideologues. The Koch brothers, for example, stubbornly cling to impractical and thoroughly debunked libertarian ideas, and numerous Fortune 500 CEOs instinctively side with Republicans, even though the US economy consistently performs better under Democratic administrations. And one should not forget Andrew William Mellon’s infamous and reckless advice to former US President Herbert Hoover on the eve of the Great Depression: “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate.”

The revelation that Trump and President Tsai Ing-wen of Taiwan spoke by telephone has probably now shattered any residual hope that the incoming US administration will be anything but a bull in a China shop. That phone call violated a protocol – avoidance of direct contact between the US and Taiwan at the presidential level – that American presidents from both parties have carefully observed for four decades.

Trump’s diplomatic breach sent shock waves across Asia, which he then aggravated by asking, in a series of tweets, if China consulted with the US before devaluing its currency or building a massive military base in the South China Sea.

But by calling into question the “One China” policy, Trump is playing with fire. Careful and deft management by both Republican and Democratic administrations has helped maintain the fragile peace between China and Taiwan. For the US, the primary objective is to maintain the status quo, by dissuading Taiwan from actively seeking independence and discouraging China from forcing Taiwan into a speedy reunification.

In another tweet, Trump asked why he shouldn’t engage with Taiwan at the presidential level when the US is selling Taiwan billions of dollars worth of weapons. Feigned or not, such bafflement from the American president-elect is truly worrying. The US sells Taiwan military equipment mostly for self-defense, and as a signal to China that the US will not stand idly by in the event of Chinese military action against the island. But the US deliberately attenuates this message by refusing to engage with Taiwan at the highest levels, which is meant to disabuse Taiwan of the notion that it can count on American support if the island ever actually declares independence.

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For more than 40 years, this doctrine of “strategic ambiguity” has worked brilliantly. Peace has survived multiple leadership changes on both sides of the Taiwan Strait. And trade and investment between Taiwan and mainland China have flourished.

A break with long-established policy by Trump would be damaging in many ways. For starters, he could embolden Taiwan to be more aggressive in trying to upend the status quo. Indeed, Tsai’s own Democratic Progressive Party is officially committed to Taiwan’s independence, and while Tsai herself has not yet sought to realize revisionist goals, that could change if she feels that Trump is sympathetic to her cause.

Trump could also do damage by inflaming Chinese government and military hardliners, if he confirms their belief that the US wants to undermine their country’s “core interests” – namely, sustaining the appearance, if not the reality, that there is only one China. The Chinese foreign ministry initially voiced mild criticism of Trump’s call with Tsai, but People’s Daily, the Chinese Communist Party’s house organ, has since issued a far stronger rebuke, warning that “creating troubles for the China-US relationship is creating troubles for the US itself.” Soon after, the Chinese Navy temporarily seized an American submersible drone in international waters. China is clearly signaling its agitation.

There is no method to Trump’s madness. In the same tweet justifying his phone call with Tsai, he repeated a false charge that China is devaluing its currency to gain export advantages vis-à-vis the US. His knowledge of international economics is either non-existent or ten years out of date. In reality, China is now hemorrhaging foreign-exchange reserves and desperately trying to prop up the renminbi’s value in the face of capital flight.

Trump is apparently antagonizing China for no good reason. Worse, by announcing that the US will withdraw from the Trans-Pacific Partnership – designed, at least in part, to shape global trade and investment flows according to Western rules, rather than China’s mercantilist vision – Trump is also abandoning a US policy that could have checked China’s surging influence in Asia. Since Trump’s TPP announcement, many Asian countries have now pledged to join a regional trade bloc spearheaded by China. With Trump’s help, the “Chinese Century” may arrive sooner than anyone expected.

By moving closer to Taiwan, attacking China on phantom grounds, and dismantling the TPP, Trump is provoking China while simultaneously empowering and enabling it. This is not the art of the deal. It’s the road to disaster. Yasheng Huang is Professor of Global Economics and Management at the MIT Sloan School of Management.

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