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Trump’s China Policy Rightly Challenges Conventional Wisdom
One of the theories at the heart of American foreign policy has been that economic liberalization leads to political liberalization. After all, to become an attractive trading partner, you have to have a positive business climate, which requires private property protections, the rule of law and a stable political system.
A related theory holds that democracies do not go to war with other democracies. Free nations tend to get along with each other. If these free nations are also trading partners, they have an even greater incentive to keep the peace rather than risk disturbing their commercial activities.
Over the last 70 years, America has opened up the world to trade, creating new markets for our goods and services while also leading millions of people at home and abroad out of poverty. In addition to spreading capitalism around the world, we have stood as a beacon of liberty for all who want to be free, and triumphed over tyrannical powers such as the Soviet Union.
In many cases these policies have been a boon to peace and prosperity, creating new trading partners and allies, and freeing and increasing the living standards of countless individuals. In short, these policies have served America’s national interest – with one notable exception.
During February of 1972, President Richard Nixon made his historic trip to China, marking the first time a U.S. president had visited the People’s Republic, and the dawn of a new age.
In the middle of the Cold War, the anti-Communist U.S. and Maoist China began a relationship that would come to center primarily on trade and finance, dramatically altering the global economy and geopolitics for the next four decades.
Little appreciated is how generous the U.S. was to grant China access to the global economic Bretton Woods system that America had built. After World War II, it was America that led the major monetary, regulatory and financial institutions that facilitated global commerce, and protected these global economic bonds through ensuring freedom of passage in the world’s shipping lanes and other arteries. In addition to creating the deepest and most diverse economy in the world – benefiting all of America’s trading partners – it was America that developed the advanced technologies that revolutionized industry, leading to quantum leaps in productivity worldwide. Too, it was chiefly America that sought to contain, deter and ultimately defeat the Communist menace that threatened not only economic freedom but freedom itself. If Communism were to have spread over the world, trade, among many other things, would have collapsed.
The U.S. has reaped many economic benefits as a trading partner with China. But China has become a global power by gaining access to the dynamic and robust economic system, and relatively free, safe and secure world that America has made.
China, in short, can thank the U.S. for creating the environment that allowed China to flourish. But it has not.
In the process of China’s boom, the U.S.-China relationship has unfolded in a way that contradicts the theories at the heart of American foreign policy, with very negative consequences.
China has taken advantage of its favored status as an American trading partner through manipulating its currency, stealing sensitive technology and valuable intellectual property and imposing unfair trade barriers, regulations and restrictions. Our trade with China has ended up neither free nor equal. None of this is to mention the related hardships that have befallen those Americans working in industries undercut by or outsourced to China.
Meanwhile, China has not reformed its political system. It remains a Communist nation that challenges America in its “near abroad” and globally, all while backing regimes hostile to us. As Chinese leader Xi Jinping has further consolidated his power, China has become less politically free, more combative towards the U.S. and increasingly aggressive in expanding its sphere of influence through its “One Belt, One Road” initiative and other activities from the South China Sea to Africa and beyond.
One of the centerpieces of President Donald Trump’s campaign platform was that China has taken advantage of us, and it must stop.
We are now starting to see the president’s views become policy.
The Trump administration’s newly released National Security Strategy reads in part:
The United States helped expand the liberal economic trading system to countries that did not share our values, in the hopes that these states would liberalize their economic and political practices and provide commensurate benefits to the United States. Experience shows that these countries distorted and undermined key economic institutions without undertaking significant reform of their economies or politics. They espouse free trade rhetoric and exploit its benefits, but only adhere selectively to the rules and agreements. [i]
You can bet this paragraph was not missed in Beijing.
Nor was it ignored in Washington, D.C., as what the Trump administration is asserting flies in the face of what our “experts” have been arguing for over 40 years regarding China. This is another example of President Trump’s willingness to ruffle their feathers – his policies call into question the wisdom of the political establishment, and therefore threaten their authority.
What actions specifically has China taken hostile to American interests? The Strategy notes:
…China is using economic inducements and penalties, influence operations, and implied military threats to persuade other states to heed its political and security agenda. China’s infrastructure investments and trade strategies reinforce its geopolitical aspirations. Its efforts to build and militarize outposts in the South China Sea endanger the free flow of trade, threaten the sovereignty of other nations, and undermine regional stability. China has mounted a rapid military modernization campaign designed to limit U.S. access to the region and provide China a freer hand there. China presents its ambitions as mutually beneficial, but Chinese dominance risks diminishing the sovereignty of many states in the Indo-Pacific. States throughout the region are calling for sustained U.S. leadership in a collective response that upholds a regional order respectful of sovereignty and independence. [ii]
It is vital that the Trump administration acknowledged China’s malign efforts in a document of this importance.
First, it sends a signal to the Chinese that we understand their goals and strategies for achieving them, something critical when dealing with any competitor.
Second, it sends a signal to China that our “kindness” to this point should not be mistaken for weakness, nor should our inability or unwillingness to hold China to account be expected to continue.
Adversaries respect strength and resolve. China’s actions in recent years have indicated they believed we were lacking in both.
The Trump administration’s China course-correction indicates a measure of strength and resolve that has been missing. It could lead to a needed rebalancing in a relationship that has become all too one-sided.
[i] https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905.pdf (Page 17)
[ii] https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905.pdf (Page 46)
Trump’s Tax Reform Plan is About Making America Great Again for the Middle Class
America has always been a nation that rewards entrepreneurship and hard work. When you combine a society of dreamers and doers with a dynamic free market economic system, you get a magic formula for creating wealth, and with it bettering people’s lives.
This increased living standard is a byproduct of the goods, services and technologies we bring to market.
Taxes are a necessary evil in this equation. From the perspective of the businessman, taxes retard growth and investment. Taxes mean less profit, which means less money that can be plowed back into enterprises to fuel their growth and reward their employees.
From the perspective of the individual and family, taxes mean less money in our pockets.
The main economic benefit of taxes is that that they pay for the goods and services provided by government, including our national defense, and the infrastructure that enables commerce. More broadly, stable, fiscally responsible governments mean less risk, which makes for a more attractive investment climate.
With this in mind, President Donald Trump is uniquely in tune with both the needs of the businessman and the citizen – of the macroeconomy and the people who comprise it. He has direct experience with the negative impact of high corporate tax rates as a real estate mogul, and ran for office to help Make America Great Again in part by tilting our system back towards the “forgotten man,” the people who make up the great American middle class that the Washington elite have all too often ignored.
In the time since the Great Recession, Main Street has seen Wall Street get a bailout. Meanwhile, as has been one of President Trump’s major focuses, American industry has been hollowed out, devastating large parts of the country. The end result has been growing economic inequality.
The president’s domestic agenda is all about bringing balance and fairness back to our nation. On the economic front, he wants greater wealth creation for all Americans, and intends to put the interests of American citizens first.
The president’s tax reform plan should be seen as one part of this more comprehensive vision.
Contrary to what the president’s critics have argued, the tax plan is all about removing sand from the gears of our powerful economic engine – creating more wealth for the vast majority of Americans – and giving Americans relief by letting them keep more of the money they earn.
Reducing the corporate tax rate from 35 percent to 21 percent is not about making the rich richer, but growing the middle class. First, a lower corporate tax rate makes America a more attractive place to invest capital. Greater investment in American businesses means more money to expand operations and spur research and development. The end result? More jobs, higher wages and better goods and services at lower prices. Lower tax rates will not only incentivize foreign investors to invest in the American economy, but incentivize American companies who have kept trillions of dollars overseas in lower tax countries to bring those funds back to our shores to re-invest.
Second, a lower corporate tax rate means greater profits, which again, businesses will use to expand their operations, hire more workers and increase wages.
Research shows by the way that corporate taxes are practically all passed on to employees – that is, salaries and wages are reduced to compensate for higher taxes. Higher corporate tax rates punish employees, not executives. Lower corporate taxes therefore do the opposite, rewarding employees.
The changes to the personal income tax brackets are also about helping the middle class, lowering their rates while getting rid of many of the loopholes and deductions that upper income earners can afford. While wealthy people on the coasts may be upset, economic policy has disproportionately benefited them for decades. If they are upset about not being able to deduct more of their state and local taxes, their real bone to pick should be with their state and local representatives who impose such high taxes, not with the federal government. Meanwhile, according to three different studies representing researchers across the political spectrum, on average, the tax bill is projected to reduce the tax burdens of every income group.
President Trump’s tax reform plan is about striking a balance between and leveling the playing field for all Americans. This is essential for both our economic growth and social unity.
An economy that grows without an expanding middle class and increasing wages is an unhealthy economy, and contributes to class warfare in our politics that poisons the country.
Trump’s tax reform plan will set us on the road to a stronger economy and a more united society by making America great again for the great American middle class.
Attacks on President Trump Show the Political Class Has Learned Nothing
The spat between President Donald Trump and Senator Bob Corker (R-TN) reveals a great deal about how little the political class has learned from the president’s election, and just how out of touch with the American people it remains.
Nearly 63 million citizens, red and blue alike, voted for President Trump as a populist, bull in a china shop, change candidate. His election over 16 accomplished primary opponents and a Clinton machine backed by practically all of the media and popular culture represented a remarkable rejection of the country’s political elite.
Part of what the American people rejected was the agenda of the Washington D.C. “smart set.” The “forgotten men and women” who voted for President Trump held career politicians responsible for disasters foreign and domestic, from the wars they often sent other people’s children to die in, to the immigration policies and trade deals they cut that millions of Americans felt violated their sovereignty and cost them their jobs. Simply put, the public felt that under presidents Democrat and Republican its interests were not taken into account, or worse directly attacked. While the lives of millions of Americans got worse, they saw the lives of elites getting better – the politicians grew more powerful and their cronies richer.
Trump’s victory was a promise to the people to drain this “swamp.” He promised these forgotten Americans a seat at the bargaining table. Business as usual was over. So too was the political correctness that Americans had grown sick and tired of. The people wanted representatives who were honest in calling things the way they saw them, and weren’t afraid to ruffle feathers.
Naturally, in the months since President Trump’s election, those who had done well under the political status quo have fought the president’s agenda tooth and nail. And they might dislike the president’s style even more than his substance.
The “resistance” to the president includes members of his own party. Republican Sen. Bob Corker’s bout with President Trump over his approach to foreign policy, among other things, are just the latest indicator that the D.C. elite cannot come to terms with President Trump’s victory or what it represented.
Sen. Corker, a high-ranking member of the senate when it comes to foreign policy, in a recent interview pleaded with President Trump to “leave it [foreign policy] to the professionals…” i.e. turn over the keys to the “experts” in his cabinet, and Congressmen like himself. Perhaps Sen. Corker forgot that President Trump’s advisors serve at his pleasure, and their job is to execute his agenda – which is the agenda the American people voted for.
Sen. Corker also disrespectfully referred to the White House as an “adult day care center.” He said he “hope[s] the staff over there [at the White House] would figure out ways of controlling” the president. It is this very condescension that the president’s voters rejected in electing him. And the idea that the president shouldn’t be free to speak his mind – something the American people rewarded him for with their votes – further illustrates Sen. Corker’s disdain for their wishes.
The senator’s view is also inconsistent with the system of government our Founders envisioned. Many have argued that the ideal was for government to be populated by citizen legislators, who humbly served and faithfully represented their communities, and then went back to their families and jobs. There is evidence for this view. As James Madison recorded in his Notes of Debates in the Federal Convention of 1787, Rhode Island’s Roger Sherman said that “Representatives ought to return home and mix with the people. By remaining at the seat of Govt. they would acquire the habits of the place which might differ from those of their Constituents.” Roger Sherman, like Donald Trump, was anti-swamp.
Relatedly, and more importantly, the Founders argued that the legitimacy of government hinged upon the consent of the governed. In a republic, politicians are supposed to represent the people, not become consumed by the trappings of their office. Does a political class dead-set on thwarting President Trump’s agenda – thwarting the agenda Americans voted for – seem like it’s doing a good job of representing them?
Now we should not be surprised that the president is encountering all of this resistance. Whether in business or politics, bureaucracies are resistant to change agents because bureaucrats care most about retaining their power — keeping the gravy train going. But it is those who come at problems from a fresh perspective, the “disruptors” who challenge conventional wisdom, that are essential to ensuring dynamism and growth. Doing the same thing again over and over again, and in the estimation of millions of Americans failing them, defines insanity.
The Trump candidacy was about taking a sledgehammer to the political establishment. The American people preferred the successful businessman to the credentialed career politicians and bureaucrats.
Just like a business that fails to serve its customers well, a political system that fails to serve its citizens must be shaken up, or face certain disaster. For millions of Americans, President Trump was a response to this impending disaster. Politicians like Sen. Corker ought to figure out ways to support the people’s agenda, rather than attacking their change agent.
Some Banks Are Too Small to Succeed
At a time when there’s much focus on what divides us, it’s easy to forget that most people agree on some things. Chief among these is our hope for a strong economy that produces opportunity. And while those on the left and right have different ideas about how to get there, virtually everyone agrees that a vibrant pipeline of new businesses creating new jobs and innovation is at the core of it.
But what’s at the core of new business creation? Entrepreneurs. You know, those stubborn dreamers who can’t help but imagine how the world should be and then try to build businesses that move in that direction. Yet even though entrepreneurs can be found throughout the U.S., the capital they need for new businesses has become increasingly concentrated in a few large geographic markets. A 2017 study by the Economic Innovation Group found that the “extreme concentration of these vital sources of capital into a few hubs means much of the country’s entrepreneurial potential remains latent in underserved and overlooked regional ecosystems.”
Historically, community banks—those with less than $10 billion in assets—have been the primary source of lending to new businesses in rural communities. In bankrolling rural entrepreneurs, community banks possessed a key advantage: They knew the character of their borrowers. This personal relationship permitted budding entrepreneurs in areas largely outside the venture-capital ecosystem to gain access to the capital they needed to open a beauty salon, a restaurant or a plumbing business.
Unfortunately, the crush of regulations that followed the 2008 financial crisis has required community banks to pull back from character-based loans. A 2015 Harvard working paper found that since 2010, when regulations increased on these institutions, community-bank lending to small businesses has rapidly declined. Rather than hire loan officers, community banks have been forced to hire compliance officers charged with applying regulatory rules, originally developed for money-center banks, to small institutions. As one small lender told The Wall Street Journal, “When they created ‘too big to fail,’ they also created ‘too small to succeed.’ ”
The reduction in character-based lending by community banks doesn’t just mean fewer Waffle House franchises and beauty salons employing people in small-town America. Because of the internet, business location is less important than ever. In other words, an entrepreneur in rural Georgia who might have previously opened a new retail store, today might start the next Amazon.com . But she could only start that disruptive business with access to capital.
Solving this problem will require a combination of approaches, including legislative initiatives like the Investing in Opportunity Act’s plan to promote investment in distressed communities through tax incentives. But cleaning up the regulatory mess is an obvious place to start. Community banks should be governed by different regulations, enforced by different regulators, than those at money-center financial institutions, ones who understand the unique risks small institutions face.
With less regulation, community banks could devote a portion of their capital to small-business lending that generates jobs, innovation and growth. There’s an entire group of potential entrepreneurs whose ideas have yet to be unlocked. Who knows how far-reaching their innovation might be, if given the chance?
Mr. Ricketts is the founder of TD Ameritrade and now pursues various entrepreneurial and philanthropic projects, including Entrepreneurs Create Jobs.
(Read the full Op-ed by Joe Ricketts in THE WALL STREET JOURNAL)