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The Mandarin from the Middle Kingdom Meets Trump at Mar-a-Lago

April 15, 2017

President Xi Jinping of China has met with President Donald Trump and, as the world remains in orbit, we can call the first face-to-face meeting of the two most powerful, contentious world leaders a success. As you may have gathered from a series of recent blogs about China, the author has no particular fondness for the place or most of its people. Until mid-March, a state entity of China had a long outstanding indebtedness of $52,700,351 to the company that provides the author's day job income which in turn covers the many bills of the author's passion, The Elephant Story. That amount was paid in full a few weeks ago to the last $1 so all China blog censorship restrictions are off.

Before we set the background and cover a few of the issues, we might just have a look at the two gentlemen as they seem to share similar facial expressions and their own form of arrogance as well as a fondness for lemons.

However, one must bear in mind that back slapping fellowship does not work with the leader of the "Middle Kingdom" who is shown above and who shares a view of the manifest destiny of his country which rivals that of "The Land of the Free."

First of all, of the 7.4 billion people on this planet, 1.4 billion of them live in China. Moreover, to put that in context, the population of the United States of 322 million live in a land mass of 9.8 million square kilometers compared to that of China at 9.6 million square kilometers. Therefore, we can stretch out a bit whereas the Chinese live shoulder to shoulder and must be subjected to crowd control and direction. For those of us living in Texas, we would find those conditions abhorrent.

Jack Ma, the Chinese Executive Chairman and Founder of Alibaba, asserted that the trouble with the United States was income inequality. It was an odd comment from someone with an estimated $30 billion net worth. Moreover, his own country has experienced a similar trend where the income share of the bottom 50% of the population, in terms of pre-tax adult earnings, has continued to decline since 1978 and has begun to converge with that of the United States. Therefore, China's income distribution was more equal in 1978 and more like the income distribution of the U.S. today. Moreover, of the 600 odd China billionaires, some one-half are believed to harbor a dream of escaping China with their scalps and their fortunes. The reality may be that they are pawns in the Middle Kingdom power struggle and they recognize their own fragility.

Jack Ma recently met with Donald Trump to promote jobs and opportunities in the U.S. and generate more sales from U.S. companies to China. Trump stated following the meeting: "It was a great meeting...Jack and I are going to do some great things." Nonetheless, beware of Chinese bearing fortune cookies as they may be empty. No matter what, how could you forget a face like his? However, Jack would be well advised to first have a look around his own home before being critical of that of others.

An initial arrow in the heart of President Xi was Trump's post-election comment that even the "One China" policy was on the table followed by his call to Taiwanese President Tsai Ing-wen. In all diplomatic circles, that is like the sighting of Martian's landing in D.C. However, Trump subsequently reconsidered and everything came back to the reality of the last many decades of "One China" relations. Nonetheless, it did catch Xi on his back foot to have your opponent a bit unhinged which is not always a bad thing. To add more intrigue, President Tsai Ing-wen announced that Taiwan would be building ten new submarines just prior to the Trump/Xi meeting - just what is needed.

Moreover, it may have set a better tempo for curtailing egregious land grabs by the Chinese in the South China Sea where far reaching territorial claims are used to justify militarization by China. Nonetheless, you can see a bit of relief in the Trump administration's inflammatory comments regarding the South China Sea to enable things to chill a bit.

A leading agenda item is said to be the trade imbalance between China and the U.S. which has grown from a trade deficit of some $100 million in 2000 to a current deficit in excess of $400 million though it has improved a bit in the first quarter. Whereas, U.S. exports to China were negligible fifteen years ago, they have increased to a current level in excess of $100 million. Accordingly, the trade imbalance with China may be a concern by some though from China's perspective the country's world-wide balance of payments has reversed direction in the past two years with deficits in excess of $400 million.

Accusations have been made by Trump that China is manipulating the yuan to improve trade. However, of all the China issues, their hands are a bit cleaner in this regard. Balance of payment deficits have increased hugely over this period and yuan foreign exchange reserves have dropped significantly. The author can testify to the level of stringent Chinese exchange controls that exist today given the personal experience of the $52 million debt collection referenced earlier. We should also recognize that China is heavily invested in the U.S. holding over $1 trillion of U.S. Treasury securities or some two and one-half times the U.S. trade deficit as well as the Chinese balance of payments deficit. Further, in 2016 China foreign direct investments into the U.S. at some $45 billion were four times the level of the U.S. into China.

Another recent experience is the massive number of Chinese tourists crowding into just about every developed part of the world. Most are clueless but have the financial capacity to invade the domains of the rich and famous. Moreover, the number of Chinese with sufficient income for frequent travel is estimated to only go one way from virtually zero nine years ago to some 200 million by 2025.

We have had a role reversal with China given Xi Jinping's embrace of "Globalization" at the Davos conference in Switzerland to the "Populism" push in some segments of the United States to Brexit in the UK and other strange political movements elsewhere. No matter what your side is on this issue, trade barriers have never worked and the world has grown far more intertwined than most anyone can comprehend. We had another "P" movement some 85 years ago called prohibition and we know how that worked out.

It is said that Donald Trump has a bust of Teddy Roosevelt in the Oval Office, whom the author also highly respects. Teddy Roosevelt had a compelling motto: "Speak softly and carry a big stick." The big stick in today's world is factual information rather than armaments as there is sufficient quantity of them to destroy the world. On the other hand, getting a bit ugly, unreasonable and unhinging your opponent can be quite effective. Goodness knows, the author did it earlier in China and it worked as evidenced by the Chinese $52 million indebtedness being paid in full.

In the final analysis, we can hope that the two leaders focus on the evil empire of North Korea and find an acceptable solution to the maniacal Kim Jung-un. Whatever solution would have to fall short of creating some form of democracy on the doorstep of China, one of the least democratic places on the face of the earth.

The outcome of the two leaders meeting at Mar-a-Lago was a non-event as it was totally overshadowed by the release of 59 tomahawk missiles into Syria during the visit. As was suggested above, the tomahawk missile action brought the real and most immediate issue with China into focus and that is North Korea. Moreover, it obfuscated the rather bogus Trump campaign issues of trade imbalances and yuan currency valuations. Further, the immediate deployment of a U.S. aircraft carrier into the Korean Peninsula is also a bit unnerving to China and the "mad hatter" regime of Kim Jung-un. Therefore, who is to say that keeping the "Mandarin from the Middle Kingdom" on his back foot in an unpredictable manner is not necessarily a bad strategy?
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