Stock market prognosticators are focusing on rising tensions between the U.S. and China, the world’s largest economies.
The list of challenges grows longer — Chinese militarization of the South China Sea; pressure on Taiwan; an oppressive new security law for Hong Kong with brutal suppression of dissent; repression of the Uighur minority population in northwestern China; American complaints about forced technology transfer and cyber theft; and national security risks involving Chinese social-media companies operating in the U.S.
Challenges with China go way back. In his remarkable book, “The China Mirage: The Hidden History of American Disaster In Asia,” James Bradley (Little, Brown and Co.; 2015) noted, “In the 1940s, Mao Zedong declared it was important for America and China to be friends, that the United States and China were a much better fit than Russia and China, and that both sides would benefit from the combination of U.S. technological know-how and skilled Chinese manpower.”
Years later, in 1972, the once anti-Communist hawk, Richard Nixon, became the first American president to visit China while in office, meeting Chairman Mao in his library, heralding the opening of the Middle Kingdom.
In 1987, this writer led a delegation of financial planners, investment advisers and guests on a study trip to Japan and Hong Kong. The visit to Hong Kong, meeting with banking, government and business leaders, was to get a sense of possibilities in the pending return of the prosperous British colony to mainland China.
On July 1, 1997, 156 years of British rule ended as Hong Kong became a special administrative region of the People’s Republic of China. Meeting in Beijing’s Hall of the People, British Prime Minister Margaret Thatcher and Chinese Premier Zhao Ziyang signed an agreement guaranteeing a 50-year extension of the city’s capitalist system, a pact now threatened.
During our visit to Hong Kong, admittedly this writer saw possibilities. My first exposure to Hong Kong was in 1964, when as an Air Force officer stationed in Saigon, Vietnam, I had the opportunity to travel to the city on several occasions as a crew member on a R&R (rest and recuperation) aircraft. It was a dynamic, exciting, forward-looking city then, appearing even more so over two decades later. Some leaders in Hong Kong were apprehensive over the transfer to China, others optimistic. Some thought that given the energy and dynamism of the territory, “China would not take over Hong Kong, philosophically Hong Kong would ‘take over’ China” as concepts of free enterprise took hold on the mainland. At the time, more freedom and democratic elements for China at large seemed an intriguing possibility.
American globalist leaders had similar hopes. Help China grow and become more prosperous, link our economies in a dance of mutual cooperation and dependence, and Chinese leaders would become responsible members of the global community.
It hasn’t worked out that way. Cheap Chinese goods flooded into America, even as Chinese trade barriers inhibited the export of U.S. goods to the country. American factories closed with jobs lost. We now awaken to a dangerous dependence on China for critical goods, including pharmaceuticals, certain electronics and rare earth minerals important to national defense. Chinese President Xi Jinping and Donald Trump increasingly are at odds, and Mr. Market has no idea where this great power impasse is going.
As with any set of possibilities, there are pros and cons, positives and negatives. Bringing critical production back to America will benefit our economy, generating jobs. Recently this writer paid good money to buy American-made high quality athletic shoes and I felt a burst of patriotism in doing so. We may see more buyers looking for “Made in USA” on labels. Companies with deep supply chain involvement in China are looking to bring more production home lest they suffer in the event that U.S.-China relations deteriorate further.
In July, Joe Biden outlined a $700 billion “Buy American” campaign, proposing, if elected, sweeping new applications of federal regulatory and spending power to bolster U.S. manufacturing and technology firms. (CNBC, 7/9/20). Donald Trump’s “Keep America Great” theme has similar goals.
Harbor no grand illusions regarding China. China is not our “friend.” China is a major competitor, often acting outside of accepted international norms. It’s a communist country, threatened by “too much democracy” as we see in Hong Kong. In any realignment, whether in American political leadership come Nov. 3 or in great power relationships, there will be winners and losers. The pythonic powers of market prognosticators and stock traders will be constantly confounded in coming months and perhaps years as we deal with the China challenge.