News Analysis

Think what you want about Stephen Bannon, but he's got a good point on China

WASHINGTON (WASHINGTON POST) - President Donald Trump's right-hand guy Stephen Bannon has been called everything from a "mastermind" to a "racist, anti-Semite".

But regardless of what you think of Mr Bannon, he just made a very good point about China.

"To me, the economic war with China is everything. We have to be maniacally focused on that," Mr Bannon told The American Prospect in a jaw-dropping interview that covered everything from urinating on yourself to North Korea.

"If we continue to lose it, we're five years away, I think, 10 years at the most, of hitting an inflection point from which we'll never be able to recover."

Many experts across the political spectrum say Mr Bannon is right: China is beating up America economically, and neither the US government nor US businesses have done much about it for years.

"It's a weird day when I agree with Steve Bannon, but he's right on this," says Ms Jennifer Harris, a China expert at the Council on Foreign Relations and a former top staffer in president Barak Obama's State Department. "Going back to George W. Bush, America's policy toward China has been to ask nicely. That has not panned out well."

Mr Trump often points to the United States' US$310 billion (S$423 billion) trade deficit with China last year as the ultimate sign of a "bad deal". But that is not the real problem. The deficit is happening mainly because Americans are shoppers, not savers. People in US buy too much stuff.

The real issue is the Chinese are pirating American ideas and technologies. In the 1990s and early 2000s, people were worried about China illegally copying movies, music and books.

The stakes are a lot higher now as the world's top economies compete on groundbreaking technologies in cloud computing, robotics, artificial intelligence and gene editing. Whoever controls these technologies will dominate global business - and more.

"When historians look back at this period of history, they are not going to wonder why the Chinese were stealing US intellectual property or business practices, they are going to wonder why the US didn't defend itself," said Mr Gordon Chang, an expert on the Chinese economy and author of "The Coming Collapse of China".

He thinks Mr Bannon is wise to hit China now. The Communist Party of China is gathering for its big conference this fall that happens only once every five years. President Xi Jinping has a lot to lose if tensions flare with the US.

Since the 1990s, the mantra in corporate America and the White House has been that America needs to cozy up to China. Chief executive officers were salivating at getting access to the largest market on the planet: 1.4 billion Chinese.

But it has not panned out. China has deftly put up barrier after barrier to make it hard for American companies to sell in China. In the meantime, Chinese firms have profited and are now buying up American companies - everything from W Hotels to Silicon Valley startups.

A Pentagon report this spring warned that China is pumping billions into hot Silicon Valley companies that are working on cutting-edge military equipment.

"China is limiting market access for US companies in China, yet the Chinese wanted unfettered access to America," said Mr Evan Medeiros, an Asian strategist at the Eurasia Group who served as Mr Obama's top adviser on the Asia-Pacific region. "We need to re-think China's very substantial access to investment in the US."

Mr Bannon has a battle plan ready, and he is already unleashing it.

On Monday, the Trump administration launched an investigation into whether China is hijacking American business ideas under Section 301 of the 1974 Trade Act.

At the moment, China forces US companies doing business there to "share" their technology because they have to do a joint venture in order to operate in China. The Section 301 move is in its early stages - an initial fact finding phase - but Mr Bannon made it clear he plans to push this along.

"We're going to run the tables on these guys," he said in the interview. And he is prepared to do even more. He also mentioned bringing a lot more complaints against China for steel and aluminium dumping.

On the campaign trail, Mr Trump frequently threatened to slap massive tariffs as high as 45 per cent on goods coming from China to the US. CEOs hated the idea. It would raise costs on American consumers, they argued.

Mr Bannon is not going that far. Instead, he is targeting his actions to go after the deeper IP issues and how China subsidises many of its companies to give them a leg up against foreign competition.

It would be a real wake up call to the Chinese, experts say.

"We're looking at the most serious US trade action against China probably ever since China opened up," said Mr Derek Scissors, a China scholar at the right-leaning American Enterprise Institute who helped advise the Trump Administration on the recent Section 301 move.

Mr Scissors has been calling for years for Chinese firms that have stolen US intellectual property to be banned from doing business in the US.

Mr Bannon is right to take the China threat seriously, but he has also been pushing policies that would be hugely detrimental to America's competition with China.

First and foremost: Immigration, the process by which America attracts the people who come up with so many of the great ideas that America has and China wants.

Mr Trump's recent proposal to cut legal immigration in half and his failure to fully condemn the actions of white supremacist groups this weekend are being read around the world as a "You're not welcome here" sign. That's not going to help America win the global talent wars.

Perhaps, the most surprising part of Mr Bannon's interview this week was when he called North Korea a "sideshow".

Mr Trump had tried to do a deal with China: If Chinese leaders could contain North Korea's weapons programme, then Mr Trump was ready to look the other way on trade.

Mr Bannon thinks that is a huge mistake - and so do a lot of people on both sides of the political aisle.

"I think Trump is making a strategic miscalculation. You need to tell the Chinese that both of these issues are important and both need to be addressed on their own," said Mr Medeiros.

Whether Mr Bannon can put his ideas into practice is another question, as there are vested interests in at least parts of the status quo. The biggest obstacle he faces in his quest to go after China is what he calls the "Wall Street lobby".

Mr Trump's top economic advisers - Mr Gary Cohn at the National Economic Council and Treasury Secretary Steve Mnuchin - are former Goldman Sachs executives who do not want a trade war with China or anybody else.

Mr Scissors saw the tensions first-hand. He described a lot of "flipping around" on what to do. Former Obama administration staffers like Ms Harris and Mr Medeiros saw similar tensions play out in their time. They say the business community talks out of both sides of its mouth on China. CEOs complain that the Chinese government is restricting business opportunities, but when the US government prepares to act, CEOs warn of a "parade of horribles" that could happen like trade wars and even a recession.

Ms Harris thinks it is overblown. "I'm actually sceptical that China will retaliate, especially ahead of the party congress this year," she said.

The business community made the same huff and puff before the US put sanctions on Russia. "We all woke up the next day and European banks didn't fail and the stock market continued to go gangbusters."

Mr Bannon just might be able to get Mr Trump to do what the Bush and Obama administration failed at on China. That is, if he can stay in the White House long enough to make it happen.