To Deal With North Korea, Apply Trade Leverage To China

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Posted: Jan 04, 2018 11:34 AM
To Deal With North Korea, Apply Trade Leverage To China

It is becoming increasingly evident that despite comments and UN votes to the contrary, China currently has no intention of taking effective steps to reduce its support for North Korea’s regime. The U.S. could take effective economic action to punish Beijing for its support of Pyongyang’s aggressive nuclear ambitions.Those potential measures could also have benefits for U.S. workers and the American economy.

The White House recently noted that a peaceful solution to the North Korean nuclear challenge would remain elusive as long as Beijing continues to provide energy and other assistance to prop up Kim Jong-un’s government, in violation of international sanctions. In a tweet, President Trump stated that China had been caught “red handed,” a reference to images caught by U.S. reconnaissance satellites of Chinese ships providing oil to North Korean vessels.

China has signaled its disapproval of any military action against North Korea. An attack against Pyongyang thus entails the risk of a much wider conflict. But the Beijing government has its vulnerabilities, particularly in its trade policy.

The US-China Economic and Security Review Commission’s 2017 “Report to Congressdisclosed that,

“The U.S. trade deficit in goods with China totaled $347 billion in 2016, the second-highest deficit on record. [...] China’s foreign investment climate continues to deteriorate as government policy contributes to rising protectionism and unfair regulatory restrictions on U.S. companies operating in China."

The United States has the need, the justification, and the leverage to impose significant restrictions to Chinese imports in response to Beijing’s violation of international sanctions in support of North Korea. A disruption of China’s economy would be deeply disturbing to the increasingly centralized and authoritarian rule of President Xi’s government.

If the U.S., by restricting trade with China, caused substantive economic disruption within that nation, President Xi’s regime, not supported by any widespread democratic election, would endure significant criticism, particularly since it would be over an issue not particularly relevant to the Chinese people.

The Clinton Administration vigorously pursued greater openness to trade with China, and the results proved harmful both to the American economy as a whole and to U.S. manufacturing employment in particular.

Despite its unfair practices and its recent explosive growth, China’s economy faces troubled times ahead. Kimberly Amadeo, writing for The Balance reports:

China's economic growth rate slowed to 6.6 percent in 2016, the lowest since 2009. It grew 6.9 percent in 2015, 7.3 percent in 2014, 7.7 percent in 2013, 7.8 percent in 2012 and 9.3 percent in 2011. Before that, China enjoyed 30 years of double-digit growth. Unfortunately, that was fed by government stimulus spending, business investment in capital goods, low-interest rates and state protection of strategic industries like banking. This success led to 5.5 percent inflation in 2011, a real estate asset bubble, growth in public debt and severe pollution.

The government's emphasis on job creation and exports left little for social welfare programs. That forced the Chinese population to save for their retirement, strangling domestic demand. Most of the growth occurred in the cities along China's east coast. These urban areas attracted 250 million migrant workers.

Chinese leaders must continue to create jobs for all these workers or face unrest. They remember Mao's Revolution all too well. At the same time, they must provide more social services. That would allow workers to save less and spend more. Only an increase in domestic demand will enable China to become less reliant on exports.”

Imposing trade restrictions on China in an effort to induce Xi’s government to cease enabling North Korea’s nuclear weapons program would receive popular support within the United States while causing exceptional problems for the Beijing regime. Unless China quickly starts to take action against Kim Jong-un’s atomic weapons program, it is a strategy that is viable and justifiable on many levels.

Frank Vernuccio serves as editor-in-chief at the New York Analysis of Policy & Government