by Robert Romano
It is no coincidence that just as U.S. trade talks with China were breaking down last week, North Korea on May 4 conducted its first missile test since Nov. 2017. As a result, separating the trade issue from the national security concerns of North Korea’s ongoing nuclear arms program may difficult if not impossible.
North Korea has long been a satellite state and ally of China. During the Korean War, when U.S. forces pushed toward the Sino-Korean border in the summer of 1950, China immediately intervened, pushing the U.S. back to the 38th parallel. Until 1953, the war was a stalemate. It never officially ended.
Today, North Korea largely depends on China for sustenance, with 90 percent of its trade conducted solely with China.
The sticking point in the trade negotiations is said to be over enforcement. Traditionally, the U.S. retains the right to levy tariffs against trade partners when agreements are not adhered to and any U.S.-China trade deal will be no different.
On May 3 China trade negotiators told the South China Morning Post that trade talks were far from finalized. The story also noted that a social media account used by Beijing, Taoran Notes, accused the U.S. of trying to rush the end of negotiations, calling it a trick “to increase tensions and generate pressure on the other side.”
The post continued, “It’s the same tactic as the U.S. threatening to raise tariffs, it is merely smoke and mirrors to exert extreme pressure… You don’t have to take it seriously.”
Vice President Mike Pence responded on CNBC on May 3, saying, “The President believes we’re in a very strong position, we could put more tariffs on if we’re not able to reach an agreement. The manner in which tariffs would come off is going to be a part of the enforcement mechanism and all of that is the subject of negotiations as we talk.”
A day later, on May 4, North Korea conducted its missile test. China did not condemn the test.
Then, on May 5, making good on his threat, President Donald Trump declared that tariffs on $200 billion of Chinese goods would be ratcheted up to 25 percent from their current 10 percent level. On May 7, U.S. Trade Representative Robert Lighthizer confirmed the move, set to take effect on May 10.
Now, the trade negotiations are not any closer to being finalized as U.S. markets get jittery.
So here is the question. How much does a nuclear North Korea factor into Beijing’s economic plans to dominate global trade? Is North Korea China’s nuclear deterrent against trade sanctions?
If so, then the trade talks are not merely a matter of economic policy, they are a matter of national security. Just as the U.S. was attempting to achieve concessions from Beijing, suddenly things heated up on the Korean peninsula.
These do not appear to be coincidences.
For those who are thinking President Trump should just trade away his trade sanctions on Beijing in return for promises of concessions from North Korea that might never materialize, that is the fool’s path of desperation. It would virtually guarantee a nuclear North Korea, and no resolution to the trade issues. The U.S. cannot be subjected to nuclear blackmail.
No, President Trump needs to stick to his guns. As he noted in The Art of the Deal, you have to use your leverage.
If North Korea wants to open up its economy and have U.S. sanctions lifted, it should get its act together, stop firing missiles and resume the denuclearization talks.
If China wants to reach a deal with the U.S. on trade, then it must address the structural imbalances brought on by intellectual property theft, currency and its blocking of imports. That is what the trade talks are all about. The longer it waits, the greater the tariffs the President appears ready to levy to cure the imbalances.
Ultimately, it is up to President Trump to keep his options open but to do so he must keep the pressure up. The trade deficit in goods with China hit an all-time high in 2018 at $419 billion. Trump needs to make certain that the proposed tariffs are enough to address returning production to the U.S. and reducing China’s global manufacturing market share. Because it is looking increasingly likely that no deal with North Korea can be had until the structure of global trade with China is settled. This could take a while.
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Robert Romano is the Vice President of Public Policy at Americans for Limited Government.