Regulators in Berlin plan to block the Chinese acquisition of a German company under a tough new “critical infrastructure” law, according to the business magazine Wirtschaftswoche. The sale of Leifeld Metal Spinning, a Mittelstand machine tool manufacturer with customers in the aerospace and nuclear industries, would be the first transaction prevented under a measure passed after a Chinese appliance maker bought Germany’s largest maker of industrial robots, in 2016. The Financial Times picked up the news
Economic Principals has no way of knowing, but the guess here is that at least the timing of the decision was a consequence of the truce declared last week in Donald Trump’s trade war with the European Union.
From its start, broad bipartisan support in Washington for strong protectionist measures has been understood to be grounded in anxiety about China’s technological progress. Trump’s chief strategist is U.S. Trade Rep. Robert Lighthizer, a long-time critic of Chinese industrial policy. Xi Jinping’s “Made in China 2025” plan has touched off alarms in European capitals as well.
The issue has been obscured by President Trump’s unilateral decision to launch a two-front war, lashing out at European, Canadian and Japanese allies with steel and aluminum tariffs, and threatening new taxes on imported cars.
Like any global conflict, Trump’s trade blitzkrieg has been difficult to follow. I read four daily newspapers, and I gain much from each of them. I share The New York Times’s indignation at virtually every aspect of the Trump administration, so I enjoy their full-throated denunciations of the president and his team. On the other hand, I expect political divisions to continue after Trump leaves office, so I appreciate the level-headed mix of stories and their play in the first section of The Wall Street Journal (the editorial pages mostly get my dander up).
But on the topic of trade, the Financial Times beats the others hands down. It’s not just world trade editor Shawn Donnan, whose dispatches are regularly a day or two ahead of the rest. Here is his recent “Big Read” piece, part of an ongoing FT series about the competition between the U.S. and China over artificial intelligence. (The WSJ’s Greg Ip has a slightly different angle.) The FT’s columnists – Martin Wolf, Edward Luce, Philip Stephens, John Thornhill – are more closely attuned to trade policy as well.
The U.S. trade war with China is missing a widely-recognized casus belli. The Soviet Union’s success in launching its Sputnik satellite, in 1957, beating the U.S. into space, sparked a vigorous response. The creation of the National Aeronautics and Space Administration and the Defense Advanced Research Projects Agency were established within a year. In Education and Military Rivalry, Philippe Aghion and Torsten Persson studied expansions of mass education that tracked military threats in Europe in the nineteenth century and in a much larger sample of countries in the years after World War II. The National Defense Education Act of 1958 created thousands of PhDs in emerging fields.
Yet neither Trump nor the Republican-led Congress is proposing any such galvanic responses to Xi’s “Made in China 2025” program. Instead, the president has begun a trade war that so far has succeeded mainly in threatening to put big agriculture on the dole. The Republicans have passed a tax bill exacerbating already deep divisions between the states. Meanwhile Trump is waging a campaign not so much anti-intellectual as anti-fact. It keeps crowds coming to his rallies, but it is disastrous way to confront an external threat. Instead, try the careful review of the last quarter century of China policy by WSJ veteran Bob Davis for a start.
This much is coming clear. The fog of war is bad enough. The fog of Trump is worse.
David Warsh, a long-time columnist and an economic historian, is proprietor of Somerville, Mass.-based Economic Principals, where this column first ran.