“The process is brutal, ugly, and extremely painful at times, but China and the United States are delinking their economies,” Jonathan Bass, the CEO of American energy seller Argent LNG, told Newsweek. “Both Washington and Beijing are reconfiguring their trade relations so that they don’t have to be dependent on each other. Both are doing this for reasons of ‘national security.’”
At the end of the Cold War, businesses no longer needed to worry about political barriers to trade because countries became far less concerned about national security. Now, in an increasingly turbulent world, those barriers are going back up.
China, for political reasons, is fast erecting barriers. It recently announced, citing national security concerns, enhanced controls on the exports of rare earth materials and other items. Moreover, Beijing is not buying American soybeans—a particularly sore point with President Donald Trump—and also shunning purchases of American energy.
The People’s Republic of China is at the same time building its own trading bloc. In general, Beijing has been debt-trapping countries in what it calls the “Global South.” This tactic has tied governments to China with onerous Chinese financing. Chinese leaders have also been able to entice countries, especially those in Latin America and Africa, into “neo-colonial” relationships by using them as sources of minerals and agricultural products but restricting purchases of their manufactured goods.
The U.S. does not need to replicate this predatory Chinese model or ensnare others in unbalanced, unsustainable trading relationships.
America, accounting for perhaps as much as 34 percent of global consumer spending, has massive purchasing power, especially because the country persistently runs large merchandise trade deficits—$1.2 trillion last year for instance.
China accounted for $295.5 billion of that deficit. In short, the U.S. has enriched a regime that considers America to be its enemy. In May 2019, People’s Daily, the most authoritative publication in China, declared a “people’s war,” which the Communist Party defines as “total war,” against the U.S.
Instead of strengthening an enemy, America can enrich friends by purchasing goods elsewhere, what former Treasury Secretary Janet Yellen called “friendshoring.” In line with Trump’s idea of reinvigorating America’s ties in the Western Hemisphere, Washington should look to other agreements, like CAFTA-DR, America’s free-trade pact with five countries in nearby Central America and one in the Caribbean, the Dominican Republic.
CAFTA-DR, created in 2004, has been a disappointment. Washington, in an optimistic era of “engagement” of the Chinese regime, paid almost no attention to the goal of making sure that benefits were channeled to countries in its own hemisphere.
“The Uruguay Round of trade negotiations abolished a system of textile and apparel quotas, a move that disadvantaged the world’s poorest countries, including those in the Western Hemisphere, and helped more advanced rivals like China,” RealityChek’s Alan Tonelson told Newsweek.
Moreover, the U.S. continually renewed China’s “normal trade relations” status and made that country’s access to the U.S. market permanent by paving the way for Beijing’s accession to the World Trade Organization in December 2001.
Washington can still make CAFTA-DR a success, however, if it grants even more preferential access to the agreement’s signatories. According to an Inter-American Development Bank internal study from 2020, Latin American producers each year could replace up to $80 billion of America’s imports from China. At the moment, however, they are lagging in displacing Chinese factories.
Yet the U.S. needs to do more than just rearrange its suppliers.
“Every great empire fell when they offshored the manufacture of goods,” said Argent LNG’s Bass. “America, which offshored factories after the Cold War, now has an opportunity to rebuild its manufacturing base.”
Bass pointed to the U.S. Commercial Service of the Commerce Department, which helps U.S. businesses, large and small, sell into foreign markets. “China became an export powerhouse because of small factories,” he said. “Small American companies cannot deliver the volumes that the now-large Chinese companies can, but in many small foreign markets volume does not matter. Price, reputation, and innovation do. Our companies can outcompete China’s especially because Trump has been content to watch the dollar decline.”
By replacing Chinese factories, America’s small businesses will help bind the world to Washington. At a time of heightened geopolitical competition, each export sale matters. “The way to go after the Communist Party of China is trade, one export market at a time, and the way to revitalize small-town America is help one small business after another,” Bass said.
Currently, Trump is refocusing American foreign and defense policy away from faraway lands to the Western Hemisphere. Beijing is more influential in what is sometimes called “America’s backyard” because China is the largest trade partner with most of the countries in the region. In fact, China is South America’s largest trading partner and Latin America’s second-largest.
Trump can change that quickly with the help of small-town businesses spread across America.
Newsweek