Donald Trump, China and the ballpoint pen

Donald Trump’s about-turn on the US Federal Reserve monetary policy and its leadership make sense; they are part of the China package deal.


In return for dealing with North Korea effectively and decisively, Donald Trump has openly offered better trade deals with China. Photo: AP
In return for dealing with North Korea effectively and decisively, Donald Trump has openly offered better trade deals with China. Photo: AP

The gymnasts who achieve impressive feats of acrobatics to win medals might have found their match in the American President. Inside of a week, he has performed so many somersaults that the world seems to be unable to figure out where he stands. He has changed his position on China’s currency manipulation—not entirely wrong, on non-intervention in Syria, on low interest rates, and on the possible reappointment of Janet Yellen as the Federal Reserve chair next year. Whether the changes of heart are matters of convenience, conviction or an elaborate con job is the subject matter of many a discussion around the world. All the explanations I have heard from experienced hands or read have not convinced me. Hence, I am attempting my own.

First, how should India react? Kunal Singh of Mint has quickly cottoned on (goo.gl/GnKgqs) to the changing tides in the White House and has recommended India opening a line with Jared Kushner. It is an interesting idea but I am not sure whether Kushner’s children have learnt Hindu prayer songs or Bollywood songs to sing in front of Prime Minister Narendra Modi when he goes to Washington later this year.

So, India might be better off discussing some incremental worthwhile suggestions that Singh has advanced, such as in Afghanistan, and the idea of middle-power coalitions that the strategic affairs expert C. Raja Mohan has advanced. But Raja Mohan notes the inability of the economic and security ministries to capitalize on the opportunities that have come India’s way in the last few years. If India is ill-equipped to handle economic challenges, it is not a surprise that it is ill-equipped to address security and strategic challenges too. That is why the Indian political leadership is sometimes left looking up to foreign leaders to deliver India from its problems.

So, has Donald Trump deserted India in the last week and has he sold himself to China? It makes sense to distrust the obvious. John Pomfret, author of The Beautiful Country And The Middle Kingdom: America And China, 1776 To The Present, wrote for The Washington Post that China best responds to clarity from the US. Pomfret thinks that China’s recent threats and ultimatums to North Korea would not have come without Trump leaning on the Chinese with clear ultimatums of his own. That explains the bombs that rained on Syria. It was a demo arranged for the Chinese President when he was in Florida.

In return for dealing with North Korea effectively and decisively, Trump has openly offered better trade deals with China. Now, Trump’s about-turn on the Federal Reserve monetary policy and its leadership make sense. They are part of the China package deal. After all, nothing would help China better than a persistently looser-than-desired monetary policy in the US, as it continues to pursue impossible goals of containing a real estate bubble with higher interest rates, of supporting economic activity with lower rates, of supporting banks with generous liquidity and of supporting the currency with higher interest rates. Now, you can see why they don’t want the additional headache of monetary policy tightening.

Will China deliver its side of the bargain? No one knows better than China how to be compliantly non-compliant. For example, Trump is right that in the last few months China has not really been manipulating its currency. But it has managed to bring its current account surplus down and Brad Setser at the Council on Foreign Relations is not convinced that it has been entirely above board. He notes that the current account balance is the variable used in the International Monetary Fund’s multilateral exchange rate surveillance and in the US’ foreign exchange report. He is right to wonder if it influenced China’s decisions on revising its balance-of-payments methodology.

China is nothing if not obsessive. Regaining its place as the Middle Kingdom—the centre of the world—is a pathological obsession. The systematic manner in which China goes about achieving this is not normal. The book that gave a very clear insight into this mindset was James Kynge’s China Shakes The World, published more than a decade ago. If you are not convinced, I invite you to read the article “Alienation 101” in 1843, a magazine published by The Economist. The role played by the Chinese Students and Scholars Association in indoctrinating Chinese students arriving in the US and in monitoring the activities in American universities that are inimical to China’s interests’ is both fascinating and chilling.

Finally, there is another revealing story on how China does not want even the ballpoint pen tip to be sourced from outside. It invested heavily in vertically integrating the production of all components of the ballpoint pen, including the tip. It succeeded in January this year. Wanting to do everything oneself is a sign of insecurity and lack of trust. Delegation and specialization are signs of confidence.

So, what if China does not deliver? That is where matters might get interesting. Trump might not swallow the “insult”, unlike his predecessor. That would make for unpredictable and unpleasant consequences. Since North Korea and Pakistan are two of China’s closest allies, can India expect China to hang Pakistan out to dry, as it is getting ready to do in the case of North Korea? In other words, will Trump lean on China to abandon Pakistan? That is a naïve expectation. Ask me again after Kushner’s children recite a prayer song in Sanskrit for Modi later this year.

V. Anantha Nageswaran is the co-author of The Economics Of Derivatives and Can India Grow? Read Anantha’s previous Mint columns at www.livemint.com/baretalk

Comments are welcome at baretalk@livemint.com

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