Made in China 2025

With a larger war about to kick off in the Middle East and news-making talks taking place on the Korean peninsula, it is easy to ignore the brewing trade war between the United States and China.

In yesterday's national edition of The New York Times Keith Bradsher had two stories -- "China Is Set to Take a Hard Line on Trump’s Trade Demands" and, with Ana Swanson, "White House Considers Restricting Chinese Researchers Over Espionage Fears" -- which document how damaging that trade war likely will be.

The United States is dead set against China's "Made in China 2025" industrial policy to attain top-tier status in AI, robotics and chip manufacture:

Beijing is frustrated with Mr. Trump’s threats to impose tariffs on $150 billion in Chinese goods and dismayed by suggestions in the West that China has a weak bargaining position. Chinese officials think the country’s one-party political system and President Xi Jinping’s enduring grip on power — particularly after the repeal of presidential term limits in March — mean that China can outlast the United States and Mr. Trump in any trade quarrel.

The Chinese government believes Mr. Trump’s background as a businessman means that at some point he will agree to a deal. Seminar participants also reaffirmed previous Chinese trade policy offers to further open the country’s financial and automotive sectors, though not in ways that would impact China’s industrial modernization program, called Made in China 2025. They also suggested that China would be willing to tighten its intellectual property rules so as to foster innovation within China as well as protect foreign technologies from counterfeiting and other illegal copying.

China is insisting that the parameters of any negotiations be limited, and that the tariff threat be removed before a final deal can be struck.

Chinese officials have reached out to Treasury Secretary Steven Mnuchin, who has reacted positively to China’s overtures in the auto and financial sectors. Mr. Mnuchin, a former Goldman Sachs executive who will be on the Trump administration’s team in Beijing later this week, has sought to calm investors worried that the rhetoric between Washington and Beijing could break out into a full-blown trade war.

China’s position is that the bilateral trade imbalance arises from differences in savings rates. Households in China save roughly two-fifths of their income. Americans, on average, save almost nothing. So money from China tends to flow to the United States, buying factories, technology companies, real estate and more, and Americans in turn spend much of that money to buy goods from China. Many economists in the United States, including some at the Treasury, share that view.

By contrast, many trade lawyers, lawmakers on both sides of the aisle and Mr. Trump contend that the trade deficit stems to a large extent from unfair practices, including cheap loans by state-controlled banks to exporters.

China is ready to discuss shrinking the $375 billion annual trade deficit. But it wants to do so by buying more high-tech American goods. Washington has long blocked such deals because of concerns that they may have military value. China is also willing to buy more oil, natural gas, coal and other goods from the United States, and to help finance the extra pipelines and other infrastructure that would be needed to move them to China.

A senior Chinese government official said that Beijing is unwilling to negotiate with the United States on any curbs on Made in China 2025, which includes large-scale government assistance to favored industries in advanced-technology manufacturing. China perceives the American demands as an attempt to stop China’s economic development and technological progress, the senior Chinese official said.

Germany and other countries also have industrial policies, and the United States has not objected to them, he added. American and European officials have argued that those policies elsewhere are much narrower and less ambitious.

Other advisers and officials said that the United States had misunderstood the Made in China 2025 industrial policy. They expressed hope that it might be possible to resolve differences by explaining the program better and making very small tweaks to it — a stance that still may not appease the Trump administration.

The Chinese government is not simply throwing money, land and other resources to favored industries like robotics, artificial intelligence, semiconductors and aircraft manufacturing, they said. China is engaged instead, they contended, in a carefully thought-out program that measures potential profits for each dollar of investment. So China’s program bears some resemblance, they said, to private sector investment programs in the West.

U.S. complaints about Made in China 2025 prove that industrial policy works. The U.S. has an industrial policy too. It's the warfare state. Full-spectrum military dominance of the globe. If the Chinese achieve preeminence in AI, aviation and the manufacturing of semiconductors this might eventually threaten U.S. global hegemony.

With all these various wars looming, and with a commander in chief who favors a confrontational negotiating position, citizens of the U.S. are going to have to feel pain. They will not be able to suffer for very long because they -- we -- are weak.