February 15, 2017 | by Steve Lawrence

China Rises as the United States Hunkers Down

Can the United States handle the emerging super-power and exploit its immense consumer markets?

China is “marching onto the center of the world’s stage” at a time when Trump foreign policy is uncertain, and “the West and the U.S. are in a defensive crouch.” Anja Manuel’s keynote talk at the Tubular Products Conference was a warning and an eye-opener.

“We cannot close off that market at a time when we are developing a major presence there—think Apple, Boeing and Coke,” Manuel said. “And we ignore, at our peril, China’s already controlling presence across Asia.”

Manuel, a former diplomat, is now a principal at the international consulting firm Rice, Hadley and Gates LLC. As in former Secretary of State, Condoleeza Rice, former national security adviser Stephen Hadley and former Secretary of Defense Robert Gates. When it comes to global economics and statecraft, Anja Manuel has been around the block more than a few times.

“Asia is now more beholden to China than it has ever been,” she said. “China is the largest trading partner for 96 of the world’s countries. It has leant more money to developing countries than the World Bank. They are issuing massive loans for infrastructure around the world.” In exchange, she said, it often gets control of invaluable rights to minerals, oil and other natural resources, not to mention growing political clout almost everywhere but the European Union.

“We seem to be heading toward something like a new cold war with China at a time when we need their help and they can be an extremely important market for us,” Manuel said. “There is no doubt that China cheats on world trade, but President Trump’s threat of 45% tariffs is a very bad idea. A trade war would hurt everyone.”

But China is not doing a lot to ease tensions. “They are building ships and subs at a breakneck pace,” she said. And its belligerence in the South and East China Seas “is very worrying. It increases the likelihood of an accident in an environment where, with our 24-hour news cycle there can be very little room to back down.” This incredible drive to dominate the region is fed by nagging and growing unrest at home.

“There are an estimated 180,000 protests a year in China, many of them over environmental concerns,” Manuel explained. “They are still building a new power plant every 10 days. But the central government really wants to reduce its industrial overcapacity and has announced it will lay off 5 million coal and steel workers in the process.”

That accounts for many of the protests, and regional politics in the country is making that goal very difficult to achieve. “They have a rapidly aging population and have to find ways to keep their state-owned enterprises working to pay for a planned expansion in health care and pension benefits,” she said. China’s inequality problem is far worse than that in the U.S. “Beijing, Shanghai and the other well off metropolises are booming, but there are 80-million Chinese who are desperately poor today.”

In the face of all this “it would be extremely important for us to maintain a united front with other countries and find a way to hold out a hand of cooperation to the Chinese,” Manuel said. To bolster our own economy, she suggested that lowering corporate taxes, creating tax incentives to invest here, and keeping the dollar down are critical.

She warned that it’s not clear that the Trump administration appreciates this, or is equipped to effectively deal with it. “The Trump cabinet is full of competing power centers, which will make it hard for them to work together,” she explained.

On the other hand, “many of his cabinet appointees are encouraging,” she added. “They are strong people who are not afraid to disagree with the President. The problem is that at any given moment it is not clear who has his ear.”

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