In case you haven’t noticed, there is a big brouhaha going on in trade talk negotiations between the United States and China. The U.S. stock market is jumping up and down because of it and China’s economy is slowly sinking. It all seems so complicated but it really isn’t.
A few months ago, China was on the verge of signing a new trade agreement with the United States helmed by our president, Donald Trump. But the Chinese double-blinked and suddenly pulled out of the deal at the last minute. A quick history lesson is in order to understand why.
In 1972, the world trading order literally exploded back in the Richard Nixon era when the diplomatic door was thrown open to the Asian market and access to China trade. The bamboo curtain was lifted. The American mission, of which a friend of mine Dr. John Light was a delegate, went to China to reopen diplomatic missions and trading routes. It was a great deal for China which was seeking validation in the world. The reunion rebooted China’s Communist- hindered economy. Since then, China has had an open-door policy to an American kitchen table offering up full seven-course meals. Every president since Nixon has had this open-door trade policy with China – “Come on in! Invest in our economy! Trade with us! Sell us stuff and have a good time.”
What ended up happening in the last 40 years was horrifically one-sided. China did come to the dining table, ate what it wanted and left without leaving a tip. Every president since Richard Nixon just shrugged their shoulders and said, “Hey, it is what it is and at least they’re friendly.”
Along comes Trump.
When Donald “the Art of the Deal” Trump saw the Chinese come into our kitchen and eating at our table, he decided to charge them for a seat. He changed the sit-down seven-course meal into a standup trans-Pacific buffet. And the Chinese squealed.
So, what are the two hang-ups keeping the Chinese from signing the deal?
Hang-up #One: President Xi Jinping of China recently appointed himself “Emperor for life.“ Donald Trump is up for re-election in a little over a year. President Xi is gambling on Trump losing in 2020, which is a big, big gamble on his part. The three cards President Xi is playing are the Ace, King, and Queen of “Risk.” So, don’t plan on any trade deals with China before the 2020 election. If China loses the hand they are now playing, then Trump will go all-in, call, and cash out. Big, big risk for President Xi.
Hang-up #Two: Intellectual property or I.P. What is Intellectual Property anyway? Glad you asked. I lecture on I.P. at the University of Georgia and other universities and colleges around the country. What I found out, was that hardly anyone understands what Intellectual Property is or what it means. The funny part is that I.P. touches every part of our everyday lives. Briefly, I.P.
stands for, “Creating something of value that never existed before, using common elements, owning it through copyrights and trademarks, and selling it.” That’s it.
That’s all it is. But the hang-up is that the Chinese can’t make their own I.P., they never have, so they either buy it or steal it.
Creating I.P. in China is virtually impossible because of the way the Chinese system of government is structured. Communism does not allow for entrepreneurship, individual innovation, new ideas, or capital ventures. In short, you will not find any reruns of “Shark Tank” on Chinese television. Not only are there no aspiring entrepreneurs seeking capital, but there are also no “Sharks.” You won’t find any Steve Jobs’, Bill Gates’, Mark Zuckerberg’s, Thomas Edison’s or Henry Ford’s coming out of China anytime soon. It’s not that the Chinese people are incapable of making Intellectual Property, they are simply not allowed to unless it’s completely government-controlled and no government in the world creates innovation on its own. So, the Chinese who created a capitalist-free zone eagerly came to America with friendly slaps on the back from every American President since Nixon. They walked through the open kitchen door, sat down at the table, ate American food, and then left with it as Chinese takeout.
Until Donald Trump became Head Chef.
The Chinese have only two ways of acquiring new I.P. and innovation, they either buy it by owning the U.S. companies that have I.P. or they steal it. Made in America - copied in China - sell it back to America cheaper and tax-free. Even though it’s against the law to steal American I.P. in China, it’s their main resource and only means of keeping up with the American economy.
Trump knows this and President Xi knows this as well. That’s why the Chinese blinked. That is why there will be no trade agreement until after the 2020 election.
I understand China’s gambit here because they really have no choice if you think about it. Still.
If Trump wins, it will bring China to its non-competitive knees. The Ace, King, and Queen of “Spades” always trumps the same suit in “Risk.”
It’s no wonder China is up in arms over these two hang-ups.
Donald Trump‘s presidency and the inability to produce its own I.P. is the crux of the matter my friends. China has much more to lose playing this card game and once these simple truths are played out, then and only then will China have a place at the back of the I.P. buffet line.
Pisano is a Ford Plantation resident.