What does the US want from China?
By Scott Sumner
China has the world’s largest economy, bigger than the US economy. Yet I rarely hear stories of the Chinese telling the US to privatize Amtrak, or reform Social Security, or abolish the Ex-Im Bank. In contrast, the US government frequently tells the Chinese how to run their economy, in all sort of ways that go beyond narrow trade issues.
Over recent decades, the US government has been demanding that China open up its capital account. Now, just as they are beginning to succeed, the US is suddenly trying to close China’s capital account:
Trump administration officials are discussing ways to limit U.S. investors’ portfolio flows into China in a move that would have repercussions for billions of dollars in investment pegged to major indexes, according to people familiar with the internal deliberations.
The discussions are occurring as Washington and Beijing negotiate a potential truce in their trade war that’s rattled the world’s two biggest economies and investors for more than a year. They also come as China is removing limits on foreign investment in its financial markets.
What happened to “deregulation”?
In a recent “threat briefing” — which is how the group titles its meetings — Bannon said American financing have helped spur China’s economic ambitions and technological advances.
“The Frankenstein monster that we have to destroy is created by the West. It’s created by our capital,” Bannon said at the Sept. 12 briefing.
That’s former Trump aide Steve Bannon, who is also uncomfortable with the idea of lots of Asian-Americans in Silicon Valley.
This policy won’t work. China will become a developed nation regardless of what the US does. Instead, our attacks on China will make them even more nationalistic, and in the long run we will be less secure than if we treated China fairly. (Taiwan will also be less secure.)
Chinese people used to tell me that the US was trying to hold China back. I didn’t believe them. Now I think that they were correct. Future historians won’t look kindly on this generation of Washington policymakers. We are repeating the mistakes of the 19th century.