Can China really hurt the United States with its financial weapons in the U.S.–China trade war? Is the United States in a “fantastic” position, as President Donald Trump says? Is dumping U.S. Treasury bonds really an option for the Chinese? And how could all of this affect the 2020 elections?
Epoch Times senior editor Jan Jekielek recently sat down with Heritage Foundation economist Stephen Moore, who played a major role in the development of Trump’s economic policy and co-authored the book “Trumponomics: Inside the America First Plan to Revive Our Economy.”
Jan Jekielek: So these Chinese retaliatory tariffs have gone into effect and President Trump has been posting about it on Twitter, and I thought you could give us a little bit of a breakdown.
I’ll read a little bit of what we got this morning. In the first tweet, he said, “China buys much less from us than we buy from them by almost $500 billion, so we are in a fantastic position.” And then he says: “We are the ‘piggy bank’ that everyone wants to raid and take advantage of. No more!” And the second piece is “China will be pumping money into their system and probably reducing interest rates … in order to make up for the business … that they’re losing. If the Federal Reserve ever did a ‘match,’ it would be game over, we win!”
So, Steve, tell us what you think of all this.
Stephen Moore: So let’s start with the first part of that, which is how this whole trade war—and it looks like it’s becoming a trade war—began. I know this whole story because I’ve been in touch with my friends over at the White House who have been doing the negotiating.
And the story, [which] hasn’t really been told in the media, is that Trump and President Xi essentially had kind of a handshake deal about what this agreement was going to look like. They’ve been working for a year-and-a-half on it. And then about 10 or 12 days ago, the Chinese just backed off on it. They just said, “Well, we’re not going to go for that.”
Trump was infuriated, and rightfully so. They’ve been doing all this negotiation. You get down to the 1-inch yard line and then you can’t get it over. It’s like if you and I have a handshake deal, and then at the last moment, “Oh, one more thing: I want this or that.” I mean, you can’t negotiate under those terms.
So China’s clearly the power that actually initiated this trade conflict. Trump will not back down. Trump basically said, “Look, if we have a deal, you’re going back on it.” I believe we’re in a very abusive relationship with China right now; Trump is right. We’ve opened up our markets to them for 25 years. They still, 25 years later, haven’t opened their markets to us.
I’m a free-trade guy—I hate tariffs, I love free trade—but it’s hard to have free trade, frankly, with a country that is stealing, cheating, lying, involved in cyberespionage against the United States, hacking into our computer systems. They are an increasingly menacing power that is problematic for the United States, to say the least. And their behavior is going to have to change.
Now, my opinion is that we … and by the way, Trump has sort of told me this, you know, let’s say we have this tit-for-tat. We’re going to have tariffs on you for this amount, while we’re going to do that. As Trump would say, sooner or later, they’ll run out of ammunition, right? Because they don’t buy that much from us. We buy $600 billion a year from them.
So I do think China’s playing a dangerous game here. It’s going to hurt both of our countries, if we have a trade war. We’re already seeing in the stock market the effect of this; consumers will pay it. But I do think Trump is using leverage. And I think at the end of the day, I’m actually fairly confident that, Trump is going to get a victory here. The question is, how long is this going to take?
Mr. Jekielek: So are we in a fantastic position just because of this trade deficit?
Mr. Moore: We’re in a very solid position. The way I like to put it—and again, Trump has said this kind of thing, too—if we can’t trade with China, we sneeze; if they can’t trade with us, they catch pneumonia. They have much more to lose than we do. I mean, if we can’t trade with China and when you go to Walmart, you may have to pay 20 cents more for a tube of toothpaste, or the clothing you buy is going to be a bit more expensive. And that will hurt consumers. No question about it. That’s one of the benefits of free trade—you get cheap things.
But if they can’t trade with us, if they can’t sell us their stuff, this cripples their economy. Trump understands this. Look, one thing you have to understand about Trump … what makes him such a great negotiator [is that] he understands the concept of leverage. And he understands right now, at this point in time, we have tremendous leverage over China. That might not be the case five or 10 years from now. But right now, we have the leverage, and he’s using it.
Mr. Jekielek: What do you make of this? I noticed that one of the things that are basically being targeted by the Chinese tariffs, [aside from agricultural products, is] liquefied natural gas. I don’t even understand why they would do that.
Mr. Moore: I am not sure why, but I think there’s an interesting point that’s not been made in the media about what China’s doing. We’ve had a conversation in this country for 2 1/2 years now about Russia meddling in American elections, and everybody’s outraged—and rightfully so. We don’t want foreign powers meddling in our elections. What about China? I mean, this is a clear-cut case where they were trying to meddle into our election by using tariffs … to go after Trump voters. We can’t stand for that. Whether you’re a Democrat, Republican, conservative, or liberal, we can’t have foreign powers trying to influence the outcome of our elections. And by the way, Russia denied that they were influencing our election. China is doing it openly, brazenly. I mean, so we can’t stand for that.
Mr. Jekielek: It’s almost like they’re using the tariffs as sanctions of sorts, right?
Mr. Moore: Exactly. And really pinpointing those hard-hat, blue-collar, and agricultural Trump voters. And that’s just … I don’t think that’s ever really happened before in our history, where a country has so brazenly tried to use trade tactics to influence an election. It’s pretty clear they don’t want Donald Trump re-elected, right? I mean, Donald Trump is a very hard-line guy with China. They would love to have a Joe Biden or a Bernie Sanders or someone like that in the White House.
One of the things that actually makes me nervous and, I think, does weaken Trump’s hand a little bit is that China may believe, Beijing may believe, “We can just wait this guy out. We can hurt the U.S. economy, hurt the U.S. stock market, then we get a more pacifist Democrat in office that we can deal with.” And that, I think, is the one flaw in Trump’s strategy: We just don’t know what their pain threshold is in China. Because they are patient people, the Chinese.
Mr. Jekielek: Right. And they also don’t have to go through—
Mr. Moore: Elections. Exactly. We have democratic elections, and they don’t. By the way, I believe that’s an advantage that we have, but for President Xi, he doesn’t care if a couple million Chinese are thrown out of work or something like that, because he doesn’t have to face those voters.
Mr. Jekielek: So what about the second part? China will be pumping money into their system, probably reducing interest rates. Do you expect this?
Mr. Moore: Look, I love Donald Trump, but I think he’s been pretty right on the Fed. I think one of the reasons he nominated me for the Fed was that I agree with him that the Fed has been too tight. And I worry that we have actually had declining prices, and that is suppressing the natural growth of the economy. We’ve shifted the supply of goods and services out through our tax cuts and our deregulation. And when the economy produces more goods and services, that means prices fall.
Now, the 300 Ph.D. economists over there at the Fed, they don’t believe that. They think just the opposite, but they’re wrong. And, so, in terms of Trump saying, well, somehow we can just switch the dial on interest rates and negate the impact of this trade war, I don’t agree with that.
By the way, China can’t protect its economy by influencing their currency either. When you weaken your currency, all you’re doing is basically hurting your own people, right? Because it means the currency … who owns the Chinese currency? The Chinese people do. So it would be like saying, if the dollar bill in my pocket is now worth 90 cents and your dollar bill is worth 90 cents, are we better off? Of course not.
Mr. Jekielek: So China, [for] 25 years, has been engaged in what we could call economic aggression or something of this realm.
Mr. Moore: Not just [economic], I mean increasingly militaristic. They’ve become much more of a centrally planned totalitarian government. I don’t buy this idea [that] China’s going to take over the world, and they’re going to be the No. 1 people in artificial intelligence and robotics and 3D imaging and the new bioengineering. I’m going to put my money on American entrepreneurs, people in Silicon Valley and Austin, Texas. And when you have government directing your investment through a centrally planned economy, a Soviet-style system, show me any time where that’s really worked. So, I love our way of doing it—a more free-market system.
I don’t buy this … China 2025 program, where they think, “Oh, we’re going to be No. 1 in robotics and artificial intelligence and engineering.” Now, we’ll see about that, but in the last 30 years, almost every important invention and innovation has been made in America, and China’s copycatted that. And by the way, this is a big problem with China. They copycat everything we do, which is fine, but you got to pay for it, right? You’ve got to pay for it. And they don’t pay for it. That’s called theft of intellectual property, and it’s a big problem.
Mr. Jekielek: So their strategy … they couldn’t innovate, seemingly, but they said, “OK, we’ll just steal it.”
Mr. Moore: Yes.
Mr. Jekielek: The effect is the same. We have the technology.
Mr. Moore: Some people are probably wondering why is that such a big problem for America? It’s because increasingly what we do as Americans is intellectual property. Computer software, innovation and product designs, copyrights, patents, new drugs, new vaccines. All of that stuff is intellectual property. It’s the stuff that comes from the human mind. If they don’t pay for it, not only does that hurt American companies, but it also reduces innovation. Because if people aren’t going to pay for it, why would you invest it in the first place? So it’s a big problem. Trump is spot on this. They’re stealing, by our estimates, $300 billion—not $300 million—$300 billion a year from our companies.
Mr. Jekielek: Right. I heard that’s even a low estimate.
Mr. Moore: We don’t know exactly. By the way, another problem—I talked to our negotiators—China still denies they’re doing it. … The first step in overcoming a problem is, you have to admit you have a problem. They won’t even admit it.
Mr. Jekielek: Well, so this is the thing that’s been troubling me. Let’s say China does blink, let’s say China signs a deal that’s better for America than what’s been [seen in] the last 25 years.
Mr. Moore: I think at the end of the day, that will happen.
Mr. Jekielek: But how can we ever trust them to live up to that bargain? That’s the question I have. I’m talking about the Chinese Communist Party here.
Mr. Moore: Of course. So the answer to that is you can’t trust [the Chinese Communist Party]. You can’t trust them as far as you can spit. I mean, it’s just true. We had a deal with them one day, and the next day they … they don’t have those kinds of Western values. You and I shake hands, you know we have a deal. But they don’t believe in that kind of thing.
Trump knows that, by the way. So what he wants—and this has been the hang-up in the negotiations—he wants enforcement. He wants what Reagan called “trust, but verify.” You’re gonna meet these metrics because we don’t trust you based on your past behavior, and you’re going to do x and y and z, and if you don’t do x, y, and z by such and such a date, we’re going to hammer you with these tariffs. Again, I don’t like tariffs. I hate tariffs, but it’s the billy club we’re using to get them to behave.
Mr. Jekielek: So you mentioned that this may take a bit of time. You also mentioned that you think they will make a deal. Do you have any projection here?
Mr. Moore: My best bet, and this is speculation, but look, it’s in both countries’ interests to get this done. It really is. And by the way, nothing that Donald Trump is asking for from the Chinese is unreasonable, right? Nothing. I mean everything they should be doing—yes, they should stop stealing; yes, they should open up their markets; yes, they should buy more of our products.
And so, my bet is that before the end of this year—in the next five or six months—we get a deal. It’s not going to be a great deal because China only goes so far, but it’ll improve things. And I think Trump can declare victory, get reelected, because that will be a spark for the economy. If the economy’s remaining strong like it is now, Trump’s going to win a big reelection. And then my advice to Trump is, then you use your second term to really hammer them, because this isn’t going to be over in six months. I mean, it’s going to go on for years and years and years. This is an epic battle. This is the new Cold War, in my opinion.
Mr. Jekielek: You know Xi, the Chinese dictator, he’s been in a position where up until now, there’s been kind of an unrestricted ability to take intellectual property—basically no responses to these things. This economic progression has been going on. All of a sudden, “Hey, we got to put the brakes on this—”
Mr. Moore: There’s a new sheriff in town.
Mr. Jekielek: “This is the new sheriff in town.” So purely based on that Xi, I imagine, is experiencing all sorts of resistance internally among his politburo and so forth because, “Well, why should we? It’s been a free-for-all for so long, right?”
Mr. Moore: Look, I don’t know how their government operates. I don’t know how the decision-making is done there. But I know this: They’re going to either have to start behaving … Look, when we started this relationship back in the early ’80s with China, they were still a developing country, and we wanted to nurture them along. We opened up the markets to them. That’s how they grew. Now, we’re 25 years later, and they still haven’t opened up their markets to us.
I would make the case that the China issue was one of the No. 1 issues for Trump. He was the first presidential candidate … the Bushes weren’t tough on China. Clinton wasn’t tough on China. Obama wasn’t tough on China. He’s the first president who’s basically said, “We have a problem here,” and you know what, the American people get it. People here in Washington may not get it, but I guarantee if you go to Erie, Pennsylvania, you go to Rockford, Illinois, you go to Flint, Michigan—those people understand what’s going on with respect to these China trade abuses.
Mr. Jekielek: So you mentioned that American consumers, obviously, will feel something because of this. What do you think the overall effect on the U.S. economy is going to be? Let’s say this thing goes on for years.
Mr. Moore: It’ll be negative, and it’ll hurt Trump. And again, China will be hit three or four times harder than we will, but it’s a mutually assured destruction strategy.
I think the American people, though, are up for this. I think most people are sophisticated and understanding what’s at stake here. I mean, by the way, the worst possible outcome would be for Trump to stand down because that would only further embolden China to abuse us.
And I think some of my free-trade friends—and look, I am a free trader, let me say that loud and clear—but I think they don’t get that, that we’ve got to have free trade, but it’s hard to have a free-trade regime. And by the way, the political consensus for free trade breaks down if you’ve got a country that’s involved in such abusive behavior. So that’s why I wrote this piece a few weeks ago basically saying that even free traders should get behind Trump in this because, at the end of the day, if Trump prevails, we will have freer trade. We’ll reduce tariffs, they’ll reduce tariffs, and both countries will actually be better off.
Mr. Jekielek: So, we discussed the impact on the American farmers and how that’s a very targeted strategy on the Chinese side. There have been people mocking the president’s idea of subsidizing some of these farmers to basically make it through the challenge that’s being faced on them. What do you make of the subsidy concept?
Mr. Moore: I’m a little torn by it, frankly. But I think at the end of the day, they are targeting our farmers, so we have to protect our farmers. In normal circumstances, I don’t ever think the government should ever protect the steel industry or this industry or that industry. But in this case, it’s a foreign act of aggression here.
And why not? Trump’s idea actually kind of makes sense. We’re gonna collect $15 billion of tariffs from them. Guess what? We’re going to give that $15 billion from the Chinese to help our farmers, to make sure that they don’t fall victim to this Chinese aggression. I think I could back it. I’m not entirely comfortable with it, but we can’t allow our farmers to go bankrupt because China is targeting them.
Mr. Jekielek: So there’s a Chinese newspaper—state newspaper, of course—suggesting that the Chinese government could dump U.S. Treasury holdings—as a retaliation tragedy.
Mr. Moore: China would only be hurting themselves if they do that. They own $1 trillion of our bonds. All they’re doing is cheapening the bonds that they hold. By the way, there’s no shortage in the world of people wanting to buy U.S. Treasury bills. Have you noticed the interest rates on Treasury bills today?
So come on, that’s the stupidest argument I’ve ever heard. I hear a lot of Americans saying that we’re vulnerable to China. No, it’s the fact that, why do you think they own Treasury bills? Because they know it’s the safest investment in the world. It’s almost flattering to the United States that they own so much of our debt. And so the idea that somehow they’re going to cripple our economy by selling the bonds they’ve already bought is ridiculous. And they’ve actually been buying fewer bonds, and there hasn’t been a shortage of people scooping them up.
Mr. Jekielek: So this massive holding, $1 trillion? You’re saying that there’s no threat to America from that?
Mr. Moore: Zero, zero.
Mr. Jekielek: Fascinating.
Mr. Moore: Now, I would love to see us have lower debt, but it doesn’t matter who holds the debt. … Let’s say, you’ve got 25 really rich capitalists in China who own $300 billion of our debt. Why don’t we just, like, let them immigrate to the United States, and become American citizens. And guess what, China doesn’t own the debt anymore. How do you like that idea?
Mr. Jekielek: Well, so I remember you talking about [the] debt-to-GDP ratio being the critical figure that matters, and maybe you can just break down—how does that differ, U.S. to China?
Mr. Moore: I don’t know what their debt … well, they don’t have nearly as much debt as we do because they have very high savings rates. And we would be better off as a country if we saved more as a nation. But, look, I love our situation right now. I mean, my goodness, think about this: We’ve cut taxes, we’ve reduced regulation, we’ve got a pro-business president. We’ve got conservative pro-business people on the courts. We have so massively increased the American capacity to produce output of goods and services. I mean, my goodness, we have, according to the latest jobs report, something like 7.3 million more jobs than people that are filling them. And if even if you took every one of the 6 million unemployed people who are officially unemployed, that means we put every one of those people on a job, we still have a million and a half jobs left over.
We’ve got a booming economy right now. And this is the last piece of the puzzle, in my opinion—getting this China trade deal done in a way that America can stand proud, where China buys more of our products, and we have a more level playing field in terms of our trade relationship.
Mr. Jekielek: Well, let’s talk about the economy a little more broadly. You wrote the book “Trumponomics,” of course, and you were one of the architects of the president’s economic policy. What do you think the growth projection is for this year?
Mr. Moore: Well, it depends a lot on China, and it’s hard for me to say, because I think a trade war with China could knock a percentage point off the GDP numbers. So, this is a big deal. But I think we’re on a good, solid 3 percent growth path. And if we settle this trade deal, I think we could get to 3.5 to 4.
Now, whenever I’d be with the president, or then-candidate Trump, I’d say, “We think we can get you to 3, 3.5, 4 percent.” He’d say: “I want 5! I want 5 percent growth.” Trump is such an optimist. I don’t know if we can get to 5, but 3, 3.5, 4 percent. … Remember, in eight years in office, not once in eight years did Barack Obama get us to 3 percent, and in Trump’s second year in office, he got us 3 percent. And by the way, during the campaign, Larry Summers and Paul Krugman and The New York Times editorial board and all these people, they said: “Trump is lying to the American people. It’s impossible to get to 3 percent growth.” And here we are right now with 3 percent growth.
Those people—by the way, those are the same people that said Trump is going to cause a second Great Depression. They’re having a hard time explaining how the economy is doing so well when everything they said … they were against the tax cuts, they were against the deregulation, they were against America pulling out of the idiotic Paris climate accord, all of these things. It’s not one thing that Trump has done. That’s the thing I like to tell people [if they ask] “What’s the most important thing Trump has done?” I love the tax cut; I think it’s been really important for our investment, but it’s just putting a pro-business, pro-America guy in the White House. It makes a big difference when you replace a community organizer with someone who knows how to run a business.
Mr. Jekielek: I remember just being stunned at the small-business optimism index.
Mr. Moore: Through the roof. And it’s stayed high for 2 1/2 years now. We’ve never seen it … in the history of the polling of that. It was literally 48 hours after the election, that number just went straight up. I think I saw a number just the other day, around 80 percent of small businesses—and we have 26 million small businesses, they’re the kind of spinal cord of our economy—are optimistic.
Mr. Jekielek: Yes, and this was just purely perception … right after the election, right?
Mr. Moore: It’s a big deal if you own a business. Remember what Obama said: “You didn’t build that.” That’s just an insult to people who start great businesses, whether they’re a corner grocery store or IBM. And that displays an attitude about business in the Obama administration, which was hostile. They were hostile to business. Trump just loves business, you know? You can’t be pro-worker and anti-business. You have to be pro-business and pro-worker. And Trump is pro-worker and pro-business. And so I think it’s that emphasis on putting America first in every decision that he makes that has unleashed … it’s like taking a champagne bottle and shaking it up and taking that cork off.
Mr. Jekielek: So for you, is this China question the biggest issue related to the economy in your mind? Is there something else that keeps you awake at night?
Mr. Moore: Right now, it’s China, clearly. I do worry a little bit about the Fed. I think they’re a little too tight. I think Trump—although his point is well-taken–exaggerates how important the Fed is. I also worry about the global economy, its slowdown. So that means … what’s happening now is the United States is kind of carrying the rest of the world on our shoulders. And that gets heavy after a while, and that slows you down. We want Japan to grow faster, we want Europe to grow faster, we want Canada to grow faster because then they can buy. You know, prosperity isn’t a zero-sum game. Right?
So I do worry a little bit about the slowdown. Japan’s growing at only 1 percent. Europe’s kind of flatlined. China’s growth rate is falling. Trump is right—we are the envy of the world right now in terms of our economy. Everybody’s looking [and asking], how are we doing it? What’s happening here?
That’s why you’re seeing the “Trump effect” politically around the world—a kind of populist pro-worker, pro-business, capitalist, free-market capitalist crusade, which is a wonderful thing. Because this is the issue of our time. It’s socialism versus communism. We have a whole party in the United States that has bet on the wrong model. That’s pretty scary, really.
Mr. Jekielek: You mentioned Canada briefly. And we have the USMCA that’s being looked at, being hopefully finalized. So will that help Canada and Mexico?
Mr. Moore: Look, I think the first NAFTA was a very positive thing. I disagree with Trump on that; remember, he used to call it the worst trade deal in history. There were some problems for sure, but … that was back in ’93. I worked on NAFTA. Remember that was Reagan’s vision, that we’d make North America a free-trade continent. I love that vision. We want to make sure there aren’t abuses taking place, and I think Trump has made some improvements to it.
Nancy Pelosi, just bring the thing to a vote! That’s all we need. Bring this to a vote. All these Democrats are complaining about Trump—all these trade protectionist policies are hurting the economy. OK, you’re for free trade. Bring up USMCA. Let us have just an up or down vote. By the way, if she allows that, it will pass. And that would be very positive for the economy.
Mr. Jekielek: You think it’s possible that she just doesn’t want to give the president a win?
Mr. Moore: That’s a tough question. Of course, she doesn’t want it. I mean, she is part of it … look, we don’t have to speculate here. She says, “I’m the president of the resistance movement.” That means anything Trump wants to do, they’re just against it, whether it’s good for the economy or not.
My goodness, we passed the biggest tax cut for American families and American businesses in the history of this country. And every single Democrat in the House and Senate voted against it. And here we are, two years later, with the fruits of that tax cut, which are evident to everyone. And the first thing they say, if they take power, [they’re] going to get rid of the tax cut.
Mr. Jekielek: It doesn’t sound like it makes a ton of sense when you put it that way.
Mr. Moore: No … and they are so beholden to this kind of class-warfare idea. And my opinion is, of course, we want the poor to do better. By the way, the wage data from The Wall Street Journal a few weeks ago, the biggest wage gain under Trump has been for the lowest income workers. How cool is that? … This is what we want. We want him to lift the lower income … Trump and I say, look, the rich can take care of themselves. I mean, he likes rich people. He’s rich himself. But he wanted … the whole idea was how do we pull up those people at the bottom of the ladder. That’s happening.
But the left feels like the way you do that is like, just taking money from rich people and giving it to poor people. That doesn’t work. You [need to] create a healthy economy. So everybody has an opportunity to succeed. And that’s what’s happening under Trump.
Mr. Jekielek: Given these different variables, what do you think the outlook is for 2020 for the president?
Mr. Moore: If the economy remains this strong, he’ll win by about a 40-state landslide reelection. People don’t vote against prosperity. I mean, they could run Mother Teresa against Trump, and if we’ve got a strong economy, Trump is gonna win. In presidential elections, which are very different elections than midterm elections … midterms people vote on things like education, health care, or the feel-good issues, the environment. When they choose a president, they look, in my opinion, at two things: How will they affect my pocketbook and my financial security? And will they keep our nation safe?
Let’s face it, on both those issues, Trump trumps any Democrat that I can possibly think of.
This interview has been edited for clarity and brevity.