U.S.A. vs China, Rounds II & III—IDFC & Poison Pill v. Belt & Road

While the political pundits continue to pontificate and espouse the merits and demerits of the Cold Economic War brewing between America and China, it’s time we also looked at Rounds II and III of the other developing battles in this ongoing expanding conflict.

On October 5^th, President Trump signed into law the Better Utilization of Investment Leading to Development (Build) Act. A noteworthy event for a couple of reasons. First of all, it was a display on how America can unite when the citizens know the facts and join forces on all fronts, especially in the rare spirit of a bipartisan supermajority votes in both chambers of Congress — and Round III of the so-called Trade War.

Let’s start with round II. The “poison pill/China” clauses in the recently concluded U.S.-Mexico-Canada Agreement (USMCA) that is replacing 24-year-old NAFTA. Clause 32.10, allows America to exit from the treaty if Canada or Mexico sign a trade agreement with a “non-market economy,” — China. A hard-hitting body blow, especially if the clause will be replicated in future U.S. trade agreements to contain China. Significant, considering the agreements currently being negotiated with Japan, European Union and post-Brexit Britain.

Back to Round III.  China’s “Belt and Road” is the challenge being confronted and contained by the Build Act. Hooked up onto must-pass legislation reauthorizing the Federal Aviation Administration — it will create a new agency to compete with the Belt and Road Initiative by making loans and guarantees to countries in Africa and Asia.

The soon-to-be-formed US International Development Finance Corp (IDFC) will have an exposure cap of US$60 billion, double the Overseas Private Investment Corporation (OPIC) it is replacing, a trickle compared to China’s, but has an edge because of the private sector financing that tag-along.

The IDFC will be allowed to invest in equity to compete directly with the Belt and Road. It will offer “blended financing” options with its vast network of private banks, guaranteeing loans to credit-starved emerging countries in Africa and Asia.

It has a long way to go to catch up on the five-year lead the Belt and Road Initiative has in $1.12 trillion in 2,220 deals in 87 countries — “debt-trap diplomacy” — with hidden strings attached or diverted according to the U.S.

The New York Times reported in June that Belt and Road funds in Sri Lanka may have been used to fund the campaigns of Beijing-friendly politicians.

Oh yeah, if anyone doubts America’s resolve, just look back at recent history at what happened to Japan when it got too aggressive with its unfair trade with America back in the 1980’s. Japan is still recovering.

China should take a closer look at what happened to Japan’s when it tried to unfairly dominate the U.S. and global economy. America had the Trump card then with Reaganomics. It definitely has it NOW. America is Trumping China!

Remember what The Donald said on The Morton Downey Jr Show in 1989? At the time, Japan, like China today, was America’s largest trading partner. “They have systematically sucked the blood out of America. They have got away with murder… We have to tax the hell out of them.”

For how long? The next rounds of this trade World Series is as exciting and predictable as the Dodger Blue- Red Sox series.