How Trump Can Challenge China

President Donald Trump has good reason to denounce China’s tolerance of intellectual-property theft and various other trade abuses, as even his harshest critics will acknowledge. And there are tentative signs that U.S. negotiators are securing concessions from Beijing on market access for U.S. firms and the protection of their intellectual property. But a face-saving deal along these lines won’t really change China’s behavior. To do that, Trump ought to play against type by championing the interests of ordinary Chinese workers. That would pressure the Chinese party-state right where it is most vulnerable—and drive home the point that our quarrel is not with the Chinese people, but with the Chinese party-state.

Having witnessed the Arab Spring, and the speed with which the self-immolation of a Tunisian street vendor sparked a massive wave of protests, the Chinese Communist Party’s elite chose to strengthen its strict censorship regime and to elevate Xi Jinping, who had long argued that the party-state could reap the benefits of a growing digital economy while tightening the grip of its digital police state, to the role of paramount leader.

The keystone of these efforts is China’s Great Firewall. It is, from one vantage point, an extraordinary triumph. At the very same time Chinese entrepreneurs have come to dominate global e-commerce and mobile payments, and as the number of billion-dollar tech start-ups in China approaches the number in the United States, the Chinese party-state has managed to stringently limit the discussion of politically sensitive ideas and events in digital media. In doing so, it has limited the spread of terrorist attacks and peaceful political dissent, both of which have a viral quality.

But now, as China experiences a growth slowdown—one that is already causing serious ructions among middle-class investors, many of whom have been devastated by the collapse of its lightly regulated peer-to-peer lending platforms, and low-skilled migrant workers, who’ve been hit by the offshoring of low-wage manufacturing employment to lower-cost locales elsewhere in Asia—the Firewall, and the party-state it shields from criticism, face a test.

China’s social-media censors must anticipate which stories might fuel opposition, which could come from workers organizing wildcat strikes, the Marxist Maoists of the campus left, or the increasingly vocal nationalist right. Or perhaps it could come from salaried professionals in big cities bristling at the prospect of finally having to pay income taxes. Sooner or later, even the most sophisticated censorship regime will buckle. The only question is when. And that is why American policy makers ought to adopt a new approach to China.

Consider that the party-state has been particularly keen to police conversations about Donald Trump’s trade war and its own agonized response. For the most part, this has been reported as a reflection of Beijing’s desire to preserve its room for maneuver. If public anger over U.S. tariffs were to boil over, it would become much harder for the party-state to offer concessions to the Americans.

There is another possibility, however, which is that at least some Chinese citizens are cheering on Trump’s hard-line approach, as the pro-democracy activist Chen Guangcheng recently suggested in The Washington Post: “It might seem counterintuitive to many Americans that people in China would call for more tariffs, as though welcoming economic damage at home. But most ordinary Chinese people don’t see it that way. They commonly believe tariffs will hurt the Communist Party far more than regular people, since it’s the party that manipulates trade to line its pockets and prop up the economy.”

Yet it is striking that Trump has done virtually nothing to encourage this line of thinking, despite the fact that doing so would surely redound to his, and more importantly, the world’s, benefit. To Trump, all that seems to matter is narrowing the bilateral trade deficit between the U.S. and China. In this regard, he is sure to be disappointed. Even if the bilateral trade deficit between the two countries were to shrink, overall trade balances are driven by how people in different countries choose to save and spend.

One of the central facts about the Chinese economy, as Matthew C. Klein of Barron’s has observed, is that Chinese workers receive only a small fraction of what they produce, thanks to a tax system that leaves the urban rich untouched while soaking the poor, a rigged financial system, and labor-market rules that strip workers of bargaining power. The result, according to Klein, is that “China may be the workshop of the world, but the Chinese people cannot afford to buy what they produce. Instead, foreigners buy Chinese goods with money stolen from Chinese households by the Chinese government.”

Workers in the United States and other market democracies also bear the consequences, as artificially inexpensive Chinese imports “come at the price of lost jobs and rising debt.” The surest way to ease tensions between China and the United States over the long run is therefore to allow low- and middle-income Chinese workers to keep more of what they earn. Though this wouldn’t guarantee a lower bilateral trade deficit, boosting Chinese household consumption would almost certainly boost China’s consumption of imports, including U.S. imports. The interests of Chinese workers and U.S. workers aren’t at odds. They are perfectly aligned. It is the Chinese party-state that profits from the suppression of household consumption, and that channels vast resources to party members and politically connected industrialists, not the Chinese people.

That is the vulnerability that Trump can now exploit. Imagine if the president gave one major public address to that effect, ideally on Chinese soil. And if this all sounds too out of character for a man who has shown little appetite for such moralistic crusading, substitute one of the many Democrats looking to make a mark in the race for the party’s presidential nomination. The social-media censors would find themselves awfully busy.