Journal of Political Risk, Vol. 9, No. 10, October 2021
By Anders Corr
This interview with Michael Stumo, the CEO of the Coalition for a Prosperous America, was conducted between October 5-6 via email.
Corr: Why and when did the Coalition for a Prosperous America begin?
Stumo: CPA started in 2008. Domestic manufacturers, farmers, ranchers and workers agreed that the biggest threat to their well being, and that of the economy, was the large, persistent US trade deficit.
Corr: How is Biden’s ally focus going for him on the issue of trade with China? Is Biden’s outreach to allies helping him on this issue?
Stumo: China understands and responds to the U.S. government effectively using leverage in our bilateral relationship to prohibit their government-controlled companies from accessing U.S. markets. U.S. allies, particularly in Europe, are generally opposed to taking sides in the U.S.-China strategic competition. Working with allies can be a diplomatic supplement, but not the main strategy, to protect our national interests. And it certainly should not be an end in itself.
Corr: What do you think are the most effective forms of leverage against China on trade issues?
Stumo: Tariffs, quotas and import bans (on forced labor goods or due to other bad behavior) are clearly the primary leverage tools. Nothing gets a country’s attention more than these tools. Public officials pretend other tools are effective but they are just other engagement and diplomacy methods, which ineffectiveness enables China’s unilateralism.
Commerce Secretary Gina Raimonda said we have to engage China because of its large market size. However, our market is much larger and we fail to either recognize or use the power of conditioning market access upon abiding by our rules. This is probably the original sin in US-China relations failure.
Corr: Do you think coordinated EU and Japanese tariffs on China, that matched US tariffs, would be effective?
Stumo: Japan’s cooperation on tariffs would be a nice diplomatic event. But it is not mathematically necessary. China has a large trade surplus with the US, much larger than others. They are excessively dependent upon the US for sales. Beijing cannot lose access to our market. Period.
Corr: Why are our European allies opposed to taking sides in our various trade and non-trade disputes with China?
Stumo: American politicians believe that the European tradition is that they fight for democracy and human rights as much as the US does. That is simply not true. Europe looks out for Europe. Volkswagen has a plant in Xinjiang and denies [it’s] a problem. The EU does not ban forced labor goods. EU financiers, like their Wall Street counterparts, want to find ways to make money in China regardless of genocide and authoritarian goals.
Corr: Isn’t there a risk, if the US does not encourage China tariffs by its allies, that China could just shift its sales to other countries?
Stumo: Regarding risk of China shifting “sales,” [there is] much more benefit than risk for these reasons. The US has the market power because we have the largest, richest market in the world. China is far more dependent upon the US market to offload their overcapacity than we are on selling there. Both in absolute trade terms and especially as a share of GDP. That is the most important issue [–] relative market power.
The US domestic market can mathematically absorb all our production even in the extreme case that we export zero. US production of goods has a 70% share of our domestic market. If we stopped exporting and sold all goods domestically, we would still only have an 85% domestic goods share of our market. A few export oriented (and politically powerful) industries would certainly be at risk – aircraft, commodity crops – but most would benefit with more domestic market share.
China produces more than it [consumes]. The plurality of its overproduction goes to the US. Beijing can’t find enough other countries to absorb that overcapacity in Belt/Road… or the EU, Japan and [South] Korea simply would not allow Chinese products to displace domestic production.
If China is tariffed, they would continue trying to sell in the US if they can get the product dumped here to bolster domestic employment. Just as they’ve done under 301 tariffs. We’ve seen this movie already. In the unlikely hypothetical sense that China refused to sell to the US, that can cause short term problems in a few sectors where (1) we have excessive reliance on China and (2) there are no immediate supply alternatives elsewhere in the world or domestically. Most goods [cannot] only be made in China forever. So others would fill the void in the short or medium term and be glad to have the new business.