Chinese and Taiwanese Prosperity Should Be a Win-Win for America [Part 2]

George Gilder

Posted October 14, 2020

George Gilder

If you missed part 1 of this Prophecy, click here to catch up.

As I was saying yesterday, this could be done relatively easily, in a way that would not even require a negotiation with China or raise Chinese hackles about the US interfering in China’s “internal affairs.”

Make Taiwan a free trade zone for US imports. Declare that any goods transiting Taiwan, even if made on the mainland, may enter the US duty free.

For those concerned — as only economic illiterates can be — about a flood of cheap goods from China, the US could make clear that imported goods must be off-loaded and re-loaded in Taiwan. This would serve not only as a boost to the Taiwanese economy, but also as modest tariff on mainland exports.

This is a good thing for multiple reasons…

The Reality of it All

Overnight, this would create a huge incentive for China to amicably extend the status quo on Taiwan —as it has for 70 years its claim to sovereignty — while refraining from military action. Free passage for exports to the US could be worth hundreds of billions to the Chinese. Even pre-Trump, US tariffs on Chinese imports averaged about 3.5%, or $35 billion on traffic close to $500 billion. Under Trump tariffs on many good are as high as 15% and in some cases higher, even 25%. In a duty-free environment, trade could reach into the trillions.

To avoid triggering nationalist resentments from the Chinese, the US need never to state the obvious — that this deal is contingent on the Communists leaving Taiwan alone. Nor should we expect the Communists to cease fulminating about the island. Promises to retake Taiwan are a staple of Chinese politicking and so far, have been about as predictive of reality as most political promises. The Communists can fulminate forever, as long as they don’t launch an invasion.

In retrospect, this is what we should have done with Hong Kong in 1997 when the Brits ceded control to the PRC. The benefit to Chinese — businesses in the entrepreneurial regions around Hong Kong — the first to take advantage of Deng’s loosening of the economy would have given the US great leverage to demand that China abide by the Fundamental Law, guaranteeing Hong Kong’s autonomy.

It’s probably too late for Hong Kong. Declaring a free trade zone on the premise that Hong Kong will regain its autonomy would be too blatant an intervention for the Communists to swallow.

We have become accustomed to think of ourselves as a supreme military power. Yet, the United States has not been on the winning side of a war since 1945. Even when we have been militarily dominant, our democratic politics has not been willing to sustain the kind of brutal operations that are necessary for victory. Even in World War II, our opponents were three nations without domestic supplies of oil, and in the case of Japan not even self-sufficient in coal. Modern Italy has never won a war against an enemy possessed of gunpowder.

On our side was the largest army on earth — the Soviet Union’s; up till then, the greatest navy on earth from Great Britain; and often forgotten, China, which held down at least a million Japanese soldiers during the war. Add a million Japanese soldiers to the fight for Pacific islands, and that flag might never have been raised over Iwo Jima. Shift Japanese resources from the Army, tied down in China, to the Navy preparing to take on the US, and there might have been 10 Japanese carriers at Midway. No tide would have been turned that day.

Today’s Prophecy

Nothing is as dangerous to us right now as the uncontested myth of our military supremacy in Asia, which is based on bloated spending and an unusably self-defeating nuclear capability.

The US has been in a war with China — in Korea — long before China became the world’s leading manufacturing power. The Chinese had no air force, no navy, and no true mechanized divisions. The Chinese invaded over the mountains of Korea with only the munitions they could carry on their backs. And we could not beat them.

China’s rise is all but inevitable. Either we work out ways to rise together, or the US will fall.

Investors seek win-win opportunities. Losers relish the failure of rivals. Chinese and Taiwanese prosperity is crucial to the future of our country.

Regards,

George Gilder
Editor, Gilder's Daily Prophecy

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