Grasping Reality on TypePad, by Brad DeLong

The United States in the nineteenth century did not pay a cent to Britain for its acquisition of British intellectual property in textiles and steel. We did not pay a cent in royalties to Charles Dickens for all of his novels in the nineteenth century. In fact, as late as the 1950s we used a loophole to steal J.R.R. Tolkien's copyright to The Lord of the Rings. We did it to Britain.

Japan industrialized without paying a lot of attention to claims about who owned intellectual property. Japan did it to us.

Now China is doing the same thing to us and Japan—this is what rising powers always do.

This is a source of annoyance. This is a thing to negotiate about. We push, we pull. But that does not change the fact that international trade relationships—whether between Britain and the United States in the 19th century or Japan and America in the mid-20th century or the U.S. and China today—are all enormously valuable win-wins. We are arguing about the division of an enormous surplus from the global division of labor. Letting that argument turn into a trade war that wrecks the joint is the definition of stupidity.

The Obama administration sought leverage over China with respect to intellectual property issues. It wished take a harder line with China on intellectual property. And so it sought to get as many as possible of China's other trading partners on our side. It formed this organization called the Trans-Pacific Partnership to set up a common negotiating position on what the international trade régime in the Pacific should be. The plan was for the TPP countries to then confront and negotiate with China. Back then you thought this was good—you and Art Laffer wrote a number of pieces about how great the TPP was, and how much leverage it would give the U.S. You wrote about how Marco Rubio was to be highly praised because he had been willing to become a decisive Senate vote to grant Obama the power to negotiate the TPP.

Indeed, if the bulk of countries from which China might seek to buy from or sell to were on board, the U.S. would now have a lot of leverage. But they aren't. So we don't.

Why don't we? Because, lo and behold, someone convinced Trump that the TPP was the second-worst trade deal in American history—"it's almost as bad as NAFTA!"—and you switched sides. All of a sudden you were there, on Trish Regan's show, claiming the TPP is a horrible deal for America.

Donald Trump... is not a terribly wise person. Jared Kushner... finds and brings into the White House this guy Peter Navarro who seems to be... simply delusional. Robert Lighthizer... an effective pro-free trade technocrat back in the Reagan and Bush 41 administrations... is now adopting positions... that I can only understand as driven by corruption.

Trump, Navarro, and Lighthizer appear to be running this China trade war.

And I cannot find a single other person in the White House who approves of and is willing top defend what they are doing.

Trump was—it appears Trump still is—insisting on bilateral balance with China. That is not going to happen. Balanced trade inevitably requires bilateral surpluses and deficits, because for no country in the world is the set of countries it wants to export to identical to the set of countries it needs to import from. Balance is always at least triangular, and almost always even more complicated. The United States is a country that wants to import from China but sees other countries as more attractive export targets. Therefore balanced U.S. overall trade would still produce a bilateral deficit with China.

Moreover, low-savings countries run trade deficits. The United States is a low-savings country.

Consider how things look from Xi's perspective, sitting in Beijing.

Xi has got to conclude that somebody who truly cared about and was genuinely serious about the intellectual property issues would not have blown up his leverage on day 1 by nuking the TPP.

Xi has got to conclude that someone who cared about trade issues at all would not be damanding something—bilateral trade balance—that is never going to happen both because the U.S. is a low-savings country and low-savings countries run trade deficits, and because the way trade would balance would have China running bilateral deficits with its materials suppliers, its materials suppliers running bilateral deficits with us, and our running a bilateral deficit with China.

Xi has got to conclude that this all might be a big and stupid bluff because someone who was genuinely serious about intellectual property would not have thrown away his leverage to start with.

Xi has got to conclude that this all might be a big and stupid bluff because someone who was genuinely serious would not be demanding something—balanced bilateral trade—that simply ain't going to happen no matter what.

Or Xi may conclude that Trump is simply someone who cannot be reasoned or negotiated with.

From Xi's perspective, it has to look like he is negotiating with somebody who is (a) bluffing or (b) flunking his Turing Test.

In either case, the natural and logical strategy for Xi is to do what the Mexican government did: hang tough, offer no substantive concessions, and make trying to keep America from doing something truly stupid Trump's problem and his advisors' problem.

That is the right strategy if (a) Trump is bluffing—as he bluffed on the shutdown, as the bluffed on NAFTA

That is also the right strategy even if (b) Trump is not bluffing, for what point is there in offering substantive concessions when the people running policy—Trump, Navarro, Lighthizer—are not wise, are delusional, appear corrupt, have no support either inside or outside the White House, and will react to whatever you do in unpredictable ways?

So we had better hope this is another Trump bluff.

#publicsphere #orangehairedbaboons #highlighted #globalization