Negotiations have seemingly stalled and, predictably, the markets are reacting with fear-based volatility. American farmers are understandably upset -- and American consumers are becoming anxious as numerous reports come out saying our average prices are going up and things are going to cost us more.
According to the latest reports, even if and when talks resume, America won’t know where to begin as China apparently has no stomach for revisiting the terms that they reneged on in the eleventh hour.
Specifically, America was looking for China to prove its intent to comply with the mapped-out agreement by explicitly naming the Chinese laws that would be updated to end forced technology transfers and the government subsidizing of industries which creates severe unfair competition. But, when it came time to put pen to paper, China wanted to “comply” with the agreement through the equivalent of a presidential executive order -- instead of actually changing their laws.
After increasing tariffs on Chinese goods earlier this month as a result, the U.S. went further last week by severely crippling the use of Chinese closely affiliated and subsidized telecommunications companies Huawei and ZTE Corp, through a 1-2 combo of an executive order banning importing equipment from foreign adversaries and then adding Huawei to a list of Chinese companies that American companies cannot sell to.
But the art of this dangerous dance is lost on us spoiled Americans who, since the latter ‘80s and ‘90s, have become accustomed to getting our stuff – clothes, computers, smartphones, appliances and televisions -- for relatively cheap prices. Certainly cheap in comparison to what those items would cost to produce in America, given our laws and regulations (including labor protections, minimum wage rules, the employer’s share of Social Security and Medicare taxes/contributions, employee benefit requirements like the ACA (Obamacare) and family leave, workman’s compensation and unemployment insurance, among a sea of other costs of doing business in America.)
Missing the point
So when trade talks stall, we freak out with immediate reports of how much our prices will go up this year on everything from electronics to furniture to clothing and shoes. But doesn’t that miss the entire point?
In fact, isn’t that exactly the problem in the first place – that China has this much power over the supply chains and manufacturing of all these consumer goods that we buy by the millions each year.
You see, this isn’t rocket science. Wall Street and multinational corporations have loved being in bed with such a cheap labor and component part supplier for decades – it kept their costs low and their profits high. Yes, it has been good for American multinationals and our stock market, good for American households and their pocketbooks -- really a beautiful story.
Except that it is not the end of the story. China is not an ignorant player that is willing to be exploited for America’s benefit indefinitely. Quite the opposite in fact.
China is cunning and strategic. The successful implementation of their Made in China 2025 plan would be the end of America’s low-cost, outsourced way of life -- America living off-of and benefiting from a cheap China. The good news is China is currently behind schedule on its plan.
Ironically, American dollars paid to China all these years has made China’s middle class the fasting growing in the world, expected to surpass our entire U.S. population in just three years. Now U.S. corporations do not want to lose access to sell to the massive Chinese market – just one of the contentious points in this economic battle…the irony.
President Trump has read the tea leaves and clearly understands that China is systematically planning for the end of America’s reliance on the cheap. (Much like an apprentice who toils away for very little at their master’s direction but eventually learns the trade well enough to venture out on their own, China is no longer America’s puppet.) And this is the very reason to be at the negotiating table in the first place.
No, this isn’t rocket science or a beautiful story with a happy American ending… it is really an economic war that we are in the middle of. It is a chess match with an enemy who has been disguised as our friend and apprentice for decades.
Let us not cry foul over some short-term raised prices when the eventuality of the end of our cheap over-reliance on China is at hand. Lose this battle but not the war.
America, let us NOT blink.
Rebecca Walser is a licensed tax attorney and certified financial planner and author of the book Wealth Unbroken, who specializes in the strategic planning of maximizing lifetime wealth while minimizing tax through her practice, Walser Wealth Management . She earned her juris doctor degree from the University of Florida and her Master of Law degree in taxation from New York University. She is a frequent national media contributor.