Spalding was a brigadier general in the U.S. Air Force, the chief China strategist for the chairman of the Joint Chiefs of Staff at the Pentagon, and a senior strategic planner for the White House on the National Security Council. Now, he’s a senior fellow at Washington-based think tank the Hudson Institute.
Ms Gao: What will be the ramification of the US designating China as a currency manipulator?
Mr. Spalding: I think the ramifications are mostly symbolic. I think it follows through on something that the president said in his first campaign for the presidency. And so it actually is a fulfilment of a promise that he made during the campaign that essentially all of these things that he has been very deliberate in terms of waiting to become incrementally tougher on the Chinese Communist Party is because he believed that there was an agreement that could be made. And so in the interest of essentially creating the environment that would allow for an agreement to be made, he was very deliberate and slow in terms of implementing progressively more strength and penalties to them for not coming to an agreement. And so I think clearly their large movements to lower the RMB exchange rate to the dollar really prompted him, after increasing tariffs, really prompted him to go ahead and make that announcement.
Ms. Gao: Now escalatory actions have been taken on the most senior level on both sides. What do you think will happen next to the US-China trade war?
Mr. Spalding: Yeah. I think the U.S. is going to go from 10 to 25 percent on the tariffs, and I think you’re going to see China and the U.S. both hardening their position. So China will work to create as much disturbance within, in particular, the states that are involved that the president needs for the 2020 election. So they’re going to be looking to create disruption within those states that are really crucial to the election in 2020, and at the same time, the US is going to look to continue to strengthen its enforcement measures against the PRC for their unfair trade and economic principles.
Ms. Gao: Do you think the president wants a trade deal with China very badly before the re-election?
Mr. Spalding: I think the president would prefer that the Chinese negotiated in good faith toward the trade deal, but I think he realizes that now that they’re really not going to do that. They are essentially committed to an economy that is chiefly dominated by their state-owned enterprises and the agreement would require them to actually begin to dismantle those as was promised in many of the five year plans that China’s had. And so while they continuously promised reform and opening, they essentially have been doing the reverse since 2008 and have no intention of going back on that.
Ms. Gao: Do you detect an attitude change on the Chinese part during the last few months? Because if we look back 8 months at the G20 in Argentina, China appeared to be eager to reach a deal with the US. Xi Jinping attended the trade talk himself and laid out all the details which gave the American side the impression that he was sincere and and he really wanted a deal. Has things changed? Does China still want a trade deal with the US?
Mr. Spalding: I don’t think China ever wanted a deal. It’s just I think before they thought they could convince the president that they wanted to deal in order to continue negotiations without actually delivering a deal. I think now they are, especially after the imposition of the latest round of tariffs, the Chinese Communist Party understands that the president has figured out what their game is. And so what they’re going to do is have progressively harder rhetoric that seeks to essentially portray the president as the bad guy in the negotiations in order to diminish support moving into the 2020 elections, in particular in those disaffected areas like the farmers.
Ms. Gao: Do you think the President need a trade deal with China for his re-election?
Mr. Spalding: That’s a very good question. I can’t predict how the elections will turn out. I will tell you that for the United States of America, if we want to remain a democratic republic, a deal that essentially allows the Chinese Communist Party to continue with actions that are essentially eroding both our economic prosperity and our democratic freedom would be enormously damaging for the American people. So I would hope that the president looking for the long-term good of the nation would do what’s right, regardless of what the outcome of the 2020 elections is.
Ms. Gao: I often times wonder what the president want to achieve with the increase of tariffs on the $300 billion of Chinese goods. Was he trying to put maximum pressure on China to push out a deal or this is just something he had to do given what the Chinese part has behaved.
Mr. Spalding: Well, I think, as I noted in my Op-Ed that, the ability for US corporations offshore manufacturing areas of low labor protections and low environmental protections really creates a disadvantage for the US in terms of domestic investment and really puts American workers at a disadvantage with other countries when their own American corporations aren’t willing to invest in jobs sustaining investments in the United States. So I think the president is going to have to progressively move towards a regime where there is certainty injected into what businesses can expect, and the idea that we’re in a trade war or that we are in some kind of temporary regime for tariffs is not really conducive to investment. What companies need is certainty about the geopolitical environment in the international trade environment. And so, I think, more important than increasing tariffs is to designate how policy will be handled in the future with regard to China, particularly if they continue to behave in a certain manner. In other words, the president could actually help the situation by just saying, okay, we realize that the China desires to be a non-market based economy and then by virtue of the fact that they will continue to be a non-market based economy that we are going to essentially treat them as a non-market based economy as a permanent policy.
Ms. Gao: Does that mean the tariffs would be permanent as you wrote in your article?
Mr. Spalding: Right, and not just make the tariffs permanent, but also create the same kind of fair or reciprocal conditions that currently exist. In other words, there are many companies, particularly large tech companies, that cannot have a presence in China. I would say that that probably should be mirrored with Chinese companies. In other words, Alibaba, Baidu, Tiantian, should not be able to have a presence in the United States, or WeChat or any of those other companies, unless reciprocal favor is given to US companies. And there is no sense from the Chinese side that that point would be the case. And so, things like that, where China essentially denies access to its economy for U.S. firms ought to be reciprocated by the U.S. towards Chinese firms. Another one is the Alipay. You know, Mastercard and Visa have both been trying to get into the Chinese market, and they’ve been prevented. Yet Alipay is allowed to be in the U.S. market. So there’s a number of these asymmetric relationships in business and finance and trade and the economy that really advantages Chinese firms to the detriment of U.S. firms. So I think that is an area that will have to be looked at. And then, it needs to be mirrored across the free world because it’s not just impacting the United States, it’s impacting other democracies as well. And it’s impacting those democracies, the companies in those democracies’ ability to compete on a fair and level playing field. In other words, America needs to reestablish a zone of economic and trade and financial relationships that actually aspire to have fair and reciprocal relationships and cut out those nations that refuse to play by the rules.
Ms. Gao: Don’t you think the business circles, the market will be scared of this idea?
Mr. Spalding: Well I think, once they understand what the rules are, then they can begin to adjust their supply chains and their business models to address that. You know, there’s a lot of fear by saying essentially that you’re going to have two large economic zones, one free and one close. I think, if successfully executed, the free world has a very, very large economic capacity and it’s a very large market. And so, to the extent that you can enlist other democracies in an effort to create a very fair and reciprocal trading environment, then US companies will be able to thrive in that environment because then it’ll be just on their abilities to be competitive. And American workers will be involved in that because American workers are productive when given the chance, when they are faced with other nations that have similar labor protections and environmental protections.
Ms. Gao: So if the US make the tariffs stay permanently, the US companies would be forced to move their supply chain out of China. That would force the US and China economy to decouple. Is that the idea?
Mr. Spalding: Yes.
Ms. Gao: If China fundamentally wouldn’t do those structural changes, the U.S. would have no choice but to decouple?
Mr. Spalding: Yeah. We really have no choice because otherwise our companies and our workers, our country can’t be competitive economically if we’re constantly in this environment where Chinese companies are benefited both in China and globally to the detriment of American companies. That’s really not a way for future American prosperity to grow.
Ms. Gao: So my question is, would President Trump be on the same page? I don’t think so right now.
Mr. Spalding: Well, I think there is this belief today that globalization is irreversible and that the Chinese market is too big to ignore, but in reality, globalization doesn’t apply to China. China uses globalization for its own advantage to the detriment of others. And American companies aren’t really benefiting from globalization when China is allowed to be a part of it. And so I think what you have to come to the conclusion is either China is going to play by the rules of openness in a globalized world or they’re not. And quite frankly, they state both in their Chinese Communist Party Constitution and in Document Number Nine that they are absolutely determined to maintain a closed system so that the Chinese Communist Party can maintain control of China. And that requires that they not participate on a fair and open basis in the globalized world. They have to. Their system is designed to take advantage of globalization and they can’t change that unless they change their system.
Ms. Gao: So my question is when President Trump will realize this and be on the same page with you. I don’t think he is on the same page with you now.
Mr. Spalding: Well I mean, I don’t know. I think there is a recognition that the Chinese don’t want to deal, but there’s not yet a recognition of the requirement to actually excise them from the globalized world. So, I think, you know, I don’t really think it’s delusion. I think it’s just the Chinese Communist Party does a very good job of obfuscating or hiding what they really are. And I think, to many, particularly in the financial world, China has portrayed themselves as very much an open system. But if you know the Communist Party, you know clearly that they’re not, and it’s very hard for people who just have a very surface level understanding of the Chinese Communist Party for them to understand the full extent of what they are and what their goals are and what they’re willing to accede to with regard to the free world.
Ms. Gao: If the President wants the tariffs to stay on for a long time, do you think that would lead to the Fed lowering interest rates again?
Mr. Spalding: I think the Feds are going to lower another quarter basis points anyway because they had gotten essentially out of line with the other central banks. I think the tightening originally was done far too slowly, which would have allowed them more leeway now that they loosened, but I think they have really no choice but to come off another quarter, another 25 basis points.
Ms. Gao: How important do you think are the farming states to the president for his re-election?
Mr. Spalding: I think they’re important, but it’s not entirely clear that they don’t understand what China is doing. And so I think this actually could backfire, as people recognize that it’s not the president that is causing this, that it’s the Chinese Communist Party. It very well could backfire against the Party by going after these people whose lives essentially have been disrupted because the Chinese Communist Party wants to deliver their prosperity in their American dreams to the people of China in order to maintain their own control.
Ms. Gao: Let’s talk about Hong Kong. If the Chinese military garrison get involved in suppressing the Hong Kong people, do you think that will end the US-China trade talks?
Mr. Spalding: Yeah, I think the Chinese Communist Party understands very clearly how important Hong Kong is to China’s economy, in terms of having access to western capital market. And that’s enabled through the special relationship that the US allows for Hong Kong based on “one country, two system.” And so that’s why the Communist Party has been very hesitant to act in spite of all the protest. Yet, I think the Communist Party at some point is going to be very concerned about whether or not the protest in Hong Kong might spread to the mainland. And when that happen, they may make the determination that they’re going to move in with the garrison and with other People’s Armed Police from the mainland. Once they do that, then it’s going to be very difficult for the American Congress to not step in and say, okay, this is clearly not adhering to the “one country, two systems” and therefore we should no longer have a special relationship with Hong Kong. And then things like American depository receipts for listed Chinese companies won’t be allowed to be sold through Hong Kong in which we’ll negate access to US stock market listing and we’ll really make it tough to earn dollars or to get dollars in western capital markets.
Ms. Gao: Will that end the trade talk as well?
Mr. Spalding: Well I doubt they’ll end the trade talk. And it will be interesting to see, I would imagine that what would happen is Congress would pass a bill with a veto-proof majority, which would mean that the United States would have a different relationship with Hong Kong. I don’t think that’s going to impact the trade talks because I think at the end of the day, the people advising the president believe that they should continue to try to work with the Chinese government in order to see if they can come to some sort of agreement. Like I said, I don’t believe that they really realize that the Communist Party is intent on not dealing forthrightly.
Ms. Gao: President Trump has displayed a very different attitude toward Hong Kong’s situation than many of the law makers. What do you think is the reason behind his mild stance?
Mr. Spalding: Well, there’s two parts to that. One is that he’s still trying to get an agreement with the Chinese Communist Party. He knows that if he antagonizes them now, it will make that much more difficult. But he also has the Secretary of State, Pompeo that can issue statements and continue to do public diplomacy and call out human rights and democratic principle violations by the Chinese Communist Party. But this is really where diplomacy and public diplomacy really come into tension because public diplomacy, in other words, the talking about what we believe in as a people and as a country, sometimes gets in the way of nation-to-nation diplomacy, particularly with an authoritarian or totalitarian regime by China. Which, by the way, is one of the reasons why I think that decoupling is a very important thing because we shouldn’t shy away from talking about who we are as a country or as a people because we want something that a totalitarian regime is clearly not prepared to do.
Ms. Gao: Are they playing good cop and bad cop a little bit?
Mr. Spalding: I definitely think that Secretary Pompeo has done a great job of reasserting democratic principles in human rights into what the State Department does. I think we got away from that at the end of the Cold War. And particularly after Tiananmen Square, the State Department has been less and less willing to talk about democratic principles in human rights, to the extent where we essentially had the Human Rights Commission at the UN become filled with human rights violators. And we have really not stood up to that. That is because quite frankly, our policy became one of open markets because we thought open markets would lead to democracy. And so we stopped talking about democratic principles because we didn’t want to disrupt the close economic relationships with China that that entailed. But I think, going forward, there’s a realization that China wants a very different world order that allows for suppression of speech and religion and, really, oppression of people. And that’s completely antithetical to U.S. national interests.
Simone Gao hosts the show “Zooming In” on The Epoch Times’ sister media NTD.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.