US-China Trade War: Its Role in Our Booming Economy—Curtis Ellis on American Thought Leaders

January 25, 2019 Updated: April 5, 2019

What is really behind the apparent boom in the American economy?

Against all odds, manufacturing jobs have grown at the highest rate in 20 years and what is the role of the Trump administration’s reset of China related policies in all of this?  This is American Thought Leaders and I am Jan Jekielek.

Curtis Ellis is a senior policy advisor with America First Policies. He previously served as a special adviser to the  Secretary of labor in the trump pence administration and was on the Trump Pence transition team.

Jan Jekielek: Welcome. Pleasure to speak with you today.

Curtis Ellis: Nice to be here with you. Thanks for having me.

Jan Jekielek: Most people are arguing that the American economy is in great shape. Unemployment is at arguably record lows. Consumer confidence is the best in 20 years. There is a wage growth, probably I think the best in 10 years or something to that effect. Even the Fed is optimistic, I was reading that today. Basically everyone seems to believe that the economy is doing well. But then again you know back in December we saw some significant market volatility some of the biggest drops we’ve seen. Can this situation last?

Curtis Ellis: Absolutely it can last. Also market volatility can last. Markets go up. Markets go down. But there is a difference between the Dow Jones Industrial Average and the real economy. What you described is the real economy doing great. Jobs are up, wages are increasing. Manufacturing jobs are up. Blue collar jobs are up. Actually blue collar jobs are outperforming white collar jobs. There are more job openings than there are people to fill them. And these are all good things. These are all a direct result of the president’s policies of tax reform, trade reform, regulatory reform and energy reform. It can continue and at the same time there can be rocky patches in the Dow Jones Industrial Average because that’s being driven by algorithms and computerized trading. And you’ve got also a bunch of globalists on Wall Street who prefer to have jobs outsourced to places like China rather than having employment and manufacturing and business done in the United States. So as there is a little concern about how these trade talks are going with China or if a computer hiccups you’re going to see wild swings in the Dow Jones industrial average. But at the same time factories continue to pump out goods in America and you see companies choosing to decouple their operations from China and bring their operations back to the United States. Now, what happens when companies bring their operations back to the United States. People are employed more; they have more money to spend and that boosts economic activity in the United States. So the real economy can keep growing almost in opposition to the predictions of the old way of thinking economists.

Jan Jekielek: OK.

Curtis Ellis: The old way of thinking economists; they would always say cut labor costs in America by moving jobs to cheap labor havens in China or elsewhere. And that will increase profits and the bottom line for these companies that will boost the stock value and that’s where we stop thinking. The new way of thinking is how do we increase wages for Americans, increase their disposable income so they can buy more and do more. Then you see the real economy grow. And that’s what we’re witnessing now. Against all predictions, President Trump’s policies of tariffs on China, put America first, bring manufacturing and economic activity back to America, is producing gains and producing a stronger economy against all of the predictions of the old way of thinking.

Jan Jekielek: Lots of people have argued that implementing these tariffs would possibly even tank the economy. And obviously that’s not what we’ve seen at least thus far. But perhaps you could go into a little more of these other prongs of the strategy that the administration has used that you mentioned. There is these four areas.

Curtis Ellis: Right. Well first of all the president ran on a policy and a platform prescriptions of tax reform, trade reform, energy reform, and regulatory reform. If we lower taxes for Americans and American business and if we lower the regulatory burden at the same time as we renegotiate the trade deals and make energy more available in America this will have the effect of turbo charging the economy. And we’re seeing the results of that already and it makes sense. Companies used to move overseas to escape the regulatory burden and the tax burden in America.

Basically if you manufacture in the United States you have to meet a rather high standard of pollution controls. But if you go to China it doesn’t matter you can pollute the water, pollute the air, pollute the soil and nobody cares, as long as you pay off the party officials. So they would move to China but now by making it that if you build in China and reimport to America you’re going to pay a tariff on those goods. But at the same time, you’re not going to be penalized for exhaling carbon dioxide in the United States. And you’re not going to face confiscatory tax rates in the United States. There’s now no reason to go to China. And that in a nutshell is how the president’s synergistic policy of this four pronged reform strategy works. And now you also had pharmaceutical companies, best example but by no means the only example, pharmaceutical companies were buying foreign pharmaceutical manufacturers and then through a process called inversion they were moving their headquarters to other countries in order to escape the tax rates here. Also had the assurance insurance group doing the same thing. They bought a Bermuda based insurance company and they were going to reincorporate in Bermuda to escape the American tax rates. But after the tax reform they no longer have to do that so they’re keeping their headquarters here. They’re able to bring profits back to the United States and invest in the United States. And we’re seeing pharmaceutical companies now doing that; reinvesting their profits in research and development for new drugs rather than reinvesting their profits in creative accounting methods to avoid taxes. And this is a direct result of the tax reform. And we’re also seeing a reduction in paperwork through regulatory reform. And these are all good things we want to get back to the real economy where companies are operating in the real world not simply to satisfy paper pushers in Washington or avoid taxes.

Jan Jekielek: I See. So let me see if I got it right. I thought I heard you say that the approach to China, which is dramatically changed since past administrations, is almost like a centerpiece of all of these four prongs of the president’s approach. Can you elaborate on that? I think that’s the first time I’ve heard it framed that way at least.

Curtis Ellis: Well we’ve seen a new national security policy promulgated by the Trump administration which makes it very clear that China is the number one national security threat facing America; China and particularly the communist regime in China. When I say China I mean the Communist regime in China is a strategic threat to the United States. There’s been an acknowledgement of this at the highest levels of the U.S. government, the Pentagon, the White House, the intelligence community, and the Justice Department, and Homeland Security. They all understand that China is mounting a concerted effort to steal our trade secrets, steal national security secrets and industrial trade secrets, in order to build up its own economy so that it can challenge the United States on many fronts: economic, military, values, and basic liberties that the American system is founded on. So what looks like trade talks and there are trade talks now going on, with the president, Trump has imposed tariffs on China because of their illegal subsidization of industries as well as their forced technology transfer, forcing American companies to transfer technology and their cyber espionage attempts against both the United States’ government and United States’ corporations. These trade talks, these tariffs are the direct result of an investigation which has found that that’s going on. At the same time you’re seeing, now this is not coordinated because national security is one thing, criminal justice is another, and Commerce Department is another. But at the same time as you see on the Commerce Department’s side investigations and findings of illegal subsidizing of industry, the Justice Department has found that China has been stealing trade secrets and this is why we now see charges being leveled against Huawei. And there is now talk about further charges being brought against Huawei and at the same time the Defense Department and our national security agencies are asking our allies not to use certain products, technology products, made in China because they contain cyber threats whether it’s espionage threats or back doors and trap doors and all kinds of things that would allow China to eavesdrop on sensitive communications. So these things are all going on at the same time because it’s a recognition of reality. What we’ve seen with the Trump administration is finally there is a recognition of reality at the highest levels of the U.S. government. What we’re seeing is a clash of worldviews. There are two opposing irreconcilable worldviews; one being pushed by Wall Street investment bankers and others is that China is our friend and if we invest more in China it’s good for everybody; it’s a win win situation. Unfortunately when China talks about win win what it often means is they win twice. The other worldview is best summarized in Michael Pillsbury’s book The Hundred Year Marathon, China’s Secret Strategy to overtake the world, overtake the United States as the world’s sole superpower. This worldview recognizes that China is a Marxist Leninist dictatorship. They will stop at nothing to overtake the United States and replace everything we stand for with their own view which does not respect private property, does not respect individuality, and it does not respect human rights, the freedom of conscience to worship as you will. They want to replace all of those things with worship of the Communist Party Marxist Leninist ideology and Xi JinPing is some type of godlike figure on Earth. So we have, as I say, two irreconcilable worldviews and there is now a battle to see which one will prevail. A recognition of the reality of China and the threat that it poses or this delusion that China can be persuaded to become like the United States or a Scandinavian social democracy.

Jan Jekielek: So now that you mention Michael Pillsbury’s book I’m reminded of an important section in there where he talks about how in 1989 when the Tiananmen Square massacre happened the ruling powers at the time felt like they were caught off guard. There was basically a Statue of Liberty that was put up in Tiananmen square by the students. And subsequent to the massacre and the students being crushed and democracy arguably being crushed, history was rewritten by the Communist Party, and previously America was seen as a positive, perhaps sometimes even benevolent friend power and that was probably a more accurate perspective. And subsequent to 89 suddenly basically every instance throughout history going back several hundred years of America doing anything was painted as this kind of imperialistic aggressor seeking to hurt China in every possible way and subvert it. I would guess the newest generation in China have grown up with this perspective of America. I don’t even know where they would see, aside from breaking through the Great Firewall of China, how would they see another side at least or let’s say reality. How do you think this kind of thing plays into this, let’s say this manufacturing of reality plays into how this other side, this Wall Street side so to speak, sees China.

Curtis Ellis: Well it’s interesting that the. . .I don’t think that the Wall Street people here even understand the depth of deception going on inside China, that China has rewritten the history and cast America as an enemy of China and an enemy of the Chinese people. I believe many of the Wall Street investment bankers probably sincerely believe to the degree they even think about it at all. They actually believe that as China becomes more prosperous and grows into a middle class country they are going to have the same values as a middle class community in America. You can say that they are getting paid to think that way. It’s good for them. They make more deals they make more money. And so they like to believe that this is going to happen because it’s to their benefit. They don’t understand that history has been rewritten in China. People are being fed this image of America as antithetical to the interests of China. As China becomes more prosperous as the communist regime in China becomes more powerful it’s going to become less friendly to the United States and they will be trying to supplant our place and eventually what you see, time and again as in the case of Huawei, they’re stealing technology or Micron Technologies they’re stealing the trade secrets of American companies using the American subsidiaries or American suppliers, pardon me, using American suppliers as a source of the technology that they will use to launch their own competitive companies. And today China’s sovereign wealth fund may employ someone like Goldman Sachs to make deals and pay them a commission but tomorrow they’ll dispose of Goldman Sachs and they’ll have their own Chinese investment bank underwriting the IPOs and doing all of the deals and pretty soon all of the folks on Wall Street and everyone else who’s getting fat today will be cut out entirely and they don’t realize that that’s the way it’s worked in every other sector that the Chinese have gotten involved in and they will do it again.

Jan Jekielek: So this suggests a kind of level of coordination, let’s say among Chinese companies and the government or their military industrial complex that almost isn’t even on the table in America. I’m wondering if you could comment on that.

Curtis Ellis: Right. There’s been this idea that somehow we can have free trade with China. Well free trade is like the tango. It takes two to tango. You can’t have free trade with the country by dropping your own tariffs if they maintain a great wall of tariffs on their side. And that’s what China has done. That becomes unilateral disarmament in a trade war. This trade war with the United States and China has been going on for decades. We have finally woken up to it and called the Minutemen to Concord Green to respond. The trade war is not something President Trump started. It’s something that the Chinese Communist Party started a long time ago. So we now have a situation where the Chinese government and Chinese companies work hand in glove in a coordinated strategy. And those companies have in many cases high ranking officials from the People’s Liberation Army running the companies. And any information they get, any secrets or technology they get is shared immediately with the Chinese military complex. This is  well-known. This is not a secret. This is well known but we’ve too many people on this side of the Pacific who have been willfully blind to this. And as Chinese venture capital firms go into Silicon Valley and buy up startup companies or buy a controlling share in startup companies and then ask to see the patents and ask to see the the fine print in the blueprints of the technology this is being transferred to the Chinese People’s Liberation Army. There’s a famous case the Wall Street Journal reported on. The Chinese government and the Communist Party set up a front company and this front company based in Hong Kong contracted with Boeing or through a whole string of cutouts and other companies for a satellite, communications satellite, that would supposedly beam internet or cartoon shows to Africa but…

Jan Jekielek: That’s not what it was for.

Curtis Ellis: …that’s not what it was for because the Chinese have military bases in Africa and it soon became clear that this satellite would not be beaming Rocky and Bullwinkle cartoons to the people of the Congo. It would be carrying communications for the Chinese army People’s Liberation Army and Navy in Africa. And that entourage was then canceled once this came to light. But it was very deceptively masked and hidden and it was only because some of the non Chinese actors involved in the companies brought a civil suit that it came to light.

Jan Jekielek: It’s almost unbelievable to hear isn’t it?

Curtis Ellis: Yeah it is.

Jan Jekielek: And that we’ve been as America we’ve been tolerating that sort of thing for so long. The IP theft that you were mentioning it’s been estimated at now, in some cases when you consider the lifetime value of the IP, at literally trillions of dollars a year, one estimate. How is it even possible to stop that using these types of more conventional methods, economic methods like the president is trying diplomatic methods?

Curtis Ellis: Well there has to be a coordinated comprehensive all hands on deck approach. We’re seeing now the Justice Department bringing charges against companies that are being hacked and bringing against the actors that are hacking them. What we need also are sanctions against all of those individuals, entities, and companies, and anybody doing business with those companies that are hacking and stealing secrets from us. So far we haven’t seen that yet. There were two Chinese nationals who were indicted for hacking into some 45 different companies and stealing secrets. The United States government wanted to impose sanctions on those individuals and the related companies that those individuals were involved with. At the last minute, Treasury Secretary Steve Mnuchin blocked the sanctions. That is not the way to get this job done. Those two individuals who are indicted are the tip of the iceberg or the tip of the tip of the iceberg. There are thousands of cases like this happening every day. We need to be prosecuting those. They should be prosecuted to the full extent of the law and we should really drop the hammer on them with sanctions and every other means of isolating them. At the same time, this will send a message to companies do not do business in China, with China, in these sensitive areas because they will rob you blind and by sanctioning the companies and by encouraging our allies, our friends and our industrial partners and our industrial companies not to be doing business in China not to be transferring technology not to leaving themselves open. That’s yet another front so we need to be doing everything possible to really wake up people, wake up the world to the true nature of this regime and how you’re putting yourself and your business at risk by putting your crown jewels anywhere near this really kleptocratic regime.

Jan Jekielek: Very disturbing when framed this way but as we know, very real. Speaking of Mnuchin, what do you make of these rumors that the tariffs might be raised to try to strike a quick deal or what do you think of that type of an approach. We don’t know if it’s true. There’s two different stories from what I know.

Curtis Ellis: Well what we see there are two different conflicting worldviews. One of them is that China is our friend and can be persuaded to be our friend and to just change itself overnight or change itself. And by being nice to them and offering them an olive branch that will give them an incentive to come around to our way of being and acting and thinking. This unfortunately has been the way we’ve been acting for the last 40 years and we’ve seen the results of that. They have not come around to our way of thinking. The other worldview is that China is intent on stealing everything that it can’t buy and that it is antithetical to our way of acting economically and socially and every other way. So there is this clash of views within the administration as well as outside the administration and you have Wall Street people who stand to make a lot of money by managing China’s sovereign wealth fund, making deals inside China. Henry Kissinger is a great example. He’s made a fortune, he’s made millions of uncounted millions of dollars by counseling American companies to invest in China and so they’re champions of the one way of looking at things. But the reality unfortunately is quite different. And after American companies invest in China they find themselves robbed blind and so dropping tariffs now would be really the mistake. That’s what we’ve been doing all along. We’ve never. . . It took President Trump to finally impose tariffs and call out China for its bad acting. So look we did not win the Cold War through a policy of preemptive unilateral disarmament. We confronted the Soviet Union and we had a policy, a credible policy of massive retaliation if they dared to act aggressively against us. And that worked. And that’s what we need this time. We can lower the tariffs after China has restructured and proven that it’s a good actor. That lowering of tariffs has to have built into it a trigger that if China violates the agreements the tariffs will snap back and there will be massive retaliation. If it’s a 25 percent tariff it’ll become a 35 percent tariff.  [If] it’s a 10 percent tariff, it will become a 50 percent tariff, if they violate the agreement that’s made.

Jan Jekielek: So here’s the question. Seems like the policies have been doing well or some would argue even incredibly well. Many indicators suggest that.  What are the threats for 2019? Where could things go wrong?

Curtis Ellis: Well things could go wrong if we follow the advice of the surrender now crowd, trust China without verification crowd. If we were to relieve tariffs and trust that China will somehow reform itself at some point in the future and let up the pressure on China to do the right thing. That would be a terrible mistake. This is our last chance to get it right. China is poised to cement a decisive lead in technology, 5G technology which would give it a window into everything we say, do, use on the Internet, would be under the control and under the watchful eye of the Chinese Communist Party on a global scale. And that’s truly a frightening prospect.

Jan Jekielek: Incredibly.

Curtis Ellis: We can’t let that happen.  Huawei, ZTE, these companies are basically the Chinese intelligence agencies and the People’s Liberation Army when the head of Huawei says we don’t spy on behalf of the government he is technically correct because they are the government. They’re not spying on behalf of the government. They are spying period, as the government. So we have to be very careful there. The other thing to watch out for in 2019 is we have to have a new understanding of economics which is actually the old understanding of economics. This is a debate that has been going on for 100, more than 100 years in the United States. If you look at President Lincoln’s economic adviser Henry Carey, an economic program of raising wages for Americans, he said, you cannot be a consumer unless you are first a producer. By being a producer you earn the money to be a consumer. We’ve been living under this false illusion of consumerism that by lowering prices of consumer goods we’re going to stimulate the economy. That’s simply a race to the bottom because what we find is that as we lower the prices of consumer goods we’re lowering the wages of Americans even more by taking jobs away from Americans giving it to poorly paid people overseas. Those Americans are now unemployed and all they can afford are cheap goods but soon they can’t even afford the cheaper goods. So what we need to be doing is raising the wages of Americans by making American producers and then they can be better consumers because they are better producers and they’re earning more money. This is a policy of, as Henry Carey explained it, concentration. We don’t want dispersion. We want concentration. The free trade policies at that time, it was great Britain espousing them, now it’s China espousing them, tend toward dispersion. Let’s produce things way over here and then sell them to people way over there. What Abraham Lincoln and his people were saying is, well let’s have the production as close to the consumption as possible. So these people in that time; it was a largely agricultural economy. These were the first decades of the industrial revolution in America. He was saying so they’re growing cotton and next to the cotton plantation let’s have the mill that makes the cloth so that the wives, or in the off hours, or the off time of year when there is no cotton to be grown, the people who were working in the cotton fields can now work in the mill and they’ll make the cloth and the money they make they earn making the cloth they will be able to buy the clothing. And you’re concentrating the economic activity widely dispersed in the sense of many factories many places close together so you have local economies build up the local economies. This is localism versus globalism.

Jan Jekielek: And almost reminds me of the concept of sustainability which has been a very popular concept for decades.

Curtis Ellis:That’s right. Exactly. Localism versus globalism and so on a national scale this is the true meaning of the President’s America first. On a global scale, if you look at the one hundred fifty thousand foot level, America is local, as opposed to the global economy. Well let’s develop America’s economy. Let’s develop Guatemala’s economy, El Salvador’s economy, Honduras’ national economy. That way the people don’t have to leave those countries to come to America to find work if they can work doing something back home they won’t want to leave. If Americans will find work making things for Americans then they’ll be fine. This movie that we see now Roma about Mexico in the 1970s; at that time, Mexico had a national economy. There were Mexican manufacturers in every area. Everything from railroad engines to food processing, to agriculture, there were Mexican national companies doing this. And Mexicans were employed supplying the goods, producing the goods for Mexicans. After NAFTA the North American Free Trade Agreement became possible. All of those companies were wiped out including the local farmers the small farmers and all those people now robbed of a job, robbed of an income, a lot of them came north to work in in the United States because they didn’t have a national economy. NAFTA was a bit of globalism right?  It was like let’s get rid of the local/national economies and merged into the global economy. This is a fallacy. And we have to get back to the old way of thinking.

Jan Jekielek: Fascinating. I’m learning, learning a lot here I think I think that’s that’s good right. Curtis, given the kind of startling reality of how the Chinese Communist Party works against America in all these different areas that you’ve described, should we be working closely with these people?

Curtis Ellis: Well that’s a good question. The natural question that arises is should we be doing business with a regime like this at all? And this is a question that’s arisen before in really rather recent American history. In 1974 America was confronted with the Soviet Union, a Marxist Leninist communist dictatorship that did not respect the human rights at all, the rights of its citizens. And so what happened is you had Senator Henry Jackson a Democrat from Washington state and a congressman, Mr. Vanik from Ohio, and they introduced an amendment to the 1974 Trade Act. And this was known as the Jackson-Vanik amendment and what it said was the United States can not extend most favored nation trade status to a country with a non market economy that does not respect the human rights of its citizens. At that time the issue was the Soviet Union that refused to grant exit visas immigration rights to the Jews of the Soviet Union who wanted to leave, go to Israel, go to the United States, go anywhere. The Soviet Union would not let them out. And so Jackson-Vanik said you must let them go and respect the human rights of all of your citizens, and until you do that you cannot have most favored nation trade status with the US. When this amendment was finally adopted over the objections of Henry Kissinger and the entire Washington establishment. It was adopted one hundred percent for five hundred thirty five to zero, passed by Congress, so it was a veto-proof majority.  And then it was later expanded and expanded so that a non market economy of a country that does not respect the human rights of its citizens can never be granted most favored nation trading status. And this [was sustained] for decades and it was in 2000 that in order for the United States to allow China to enter the World Trade Organization we granted China a permanent exemption. It used to come up for an annual review of its human rights record. And if the President did not certify that China was making progress on treating its citizens with dignity, freedom of conscience, freedom of speech, freedom of association, they would have their trade privileges revoked. And this came up for annual review. As long as that sword of Damocles hung over China’s head no American corporation would invest a dime in China for fear that they would lose the preferential access to the American market, tariff free access for the goods produced in China. And it’s time to think about this again. It was normal business as usual, for 30 years for the United States to have its human rights and its human values as part of the trade negotiations. If we truly want to be a shining city on a hill and to share our values with the world, this is something, that was the feeling at the time, we have to make that part of the deal.

Jan Jekielek: So this is a policy recommendation you’re offering here. It sounds pretty compelling to me.

Curtis Ellis: This is a history lesson. This is the way it used to be. Until then, Bill Clinton and Bob Rubin, and people on the other side of the aisle as well, started to feel this actually was a Cobb denied idea going back again to the British Empire of the eighteen hundreds that as countries that trade with each other start to share values and once we have free trade, war will disappear and conflict will disappear and we won’t need armies anymore and pretty soon borders will disappear and we won’t need nations anymore and everybody will live happily ever after. Well it didn’t work then and we discovered that that’s what was happening in the year 2000 when we said well if we just open up to China and invest, then trade with them, they will become peaceful and wonderful and democratic. And we’ve seen that that doesn’t work.

Jan Jekielek: Yeah I remember I was at a hearing a couple of years back where there was kind of a look back status for China and it was actually Nancy Pelosi and Frank Wolf speaking together, looking back because they were both opponents and… .

Curtis Ellis: That’s right.

Jan Jekielek: …back in the day and that as far as I recall their conclusion was America helped build the world’s biggest dictatorship.

Curtis Ellis: That’s right. That’s exactly right. Sad but true and if the Chinese Communist Party thinks that the Democrats and Nancy Pelosi having control of the House of Representatives is somehow going to undo President Trump’s policies of standing up to China they’re sorely mistaken because the Democrats Nancy Pelosi, Senator Sherrod Brown, even Chuck Schumer were the most vocal opponents of appeasement and they’ll continue to be.

Jan Jekielek: Thank you very much Curtis. I really appreciate it.

Curtis Ellis: Thank you.

 

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Follow Jan on Twitter: @JanJekielek
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