First, they don’t buy Treasury bills as much as they used to. So America has to offer them higher rates of interest to do so – which will ripple through our entire economy, from car payments to home mortgages to the cost of servicing our national debt at the expense of everything else.
“Are President Trump’s herky-jerky decision-making and border taxes causing the world’s investors to shy away from the dollar and US Treasurys?” asked The Wall Street Journal editorial page Sunday under the headline, “Is There a New US Risk Premium?” Too soon to say, but not too soon to ask, as bond yields keep spiking and the dollar keeps weakening – classic signs of a loss of confidence that does not have to be large to have a large impact on our whole economy.
The second thing is that our allies lose faith in our institutions. The Financial Times reported Monday that the European Union’s governing “commission is issuing burner phones and basic laptops to some US-bound staff to avoid the risk of espionage, a measure traditionally reserved for trips to China.” It doesn’t trust the rule of law in America anymore.
The third thing people overseas do is tell themselves and their children – and I heard this repeatedly in China a few weeks ago – that maybe it’s not a good idea any longer to study in America. The reason: They don’t know when their kids might be arbitrarily arrested, when their family members might get deported to El Salvadoran prisons.
Is this irreversible? All I know for sure today is that somewhere out there, as you read this, is someone like Steve Jobs’ Syrian birth father, who came to our shores in the 1950s to get a doctorate at the University of Wisconsin, someone who was planning to study in America but is now looking to go to Canada or Europe instead.
You shrink all those things – our ability to attract the world’s most energetic and entrepreneurial immigrants, which allowed us to be the world’s centre for innovation; our power to draw in a disproportionate share of the world’s savings, which allowed us to live beyond our means for decades; and our reputation for upholding the rule of law – and over time you end up with an America that will be less prosperous, less respected and increasingly isolated.
US President Donald Trump and Chinese President Xi Jinping.Credit: AP
Wait, wait, you say, but isn’t China also still digging coal? Yes, it is, but with a long-term plan to phase it out and to use robots to do the dangerous and health-sapping work of miners.
And that’s the point. While Trump is doing his “weave” – rambling about whatever strikes him at the moment as good policy – China is weaving long-term plans.
In 2015, a year before Trump became president, China’s prime minister at the time, Li Keqiang, unveiled a forward-looking growth plan called “Made in China 2025.” It began by asking: what will be the growth engine for the 21st century? Beijing then made huge investments in the elements of that engine’s components, so Chinese companies could dominate them at home and abroad. We’re talking clean energy, batteries, electric vehicles and autonomous cars, robots, new materials, machine tools, drones, quantum computing and artificial intelligence.
The most recent Nature Index shows that China has become “the leading country globally for research output in the database in chemistry, earth and environmental sciences and physical sciences, and is second for biological sciences and health sciences.”
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Does that mean China will leave us in the dust? No. Beijing is making a huge mistake if it thinks the rest of the world is going to let China indefinitely suppress its domestic demand for goods and services so the government can go on subsidising export industries and try to make everything for everyone, leaving other countries hollowed out and dependent. Beijing needs to rebalance its economy, and Trump is right to pressure it to do so.
But Trump’s constant bluster and his wild on-and-off imposition of tariffs are not a strategy – not when you are taking on China on the 10th anniversary of Made in China 2025. If Treasury Secretary Scott Bessent really believes what he foolishly said, that Beijing is just “playing with a pair of twos,” then somebody, please let me know when it’s poker night at the White House because I want to buy in. China has built an economic engine that gives it options.
The question for Beijing – and the rest of the world – is: How will China use all the surpluses it has generated? Will it invest them in making a more menacing military? Will it invest them in more high-speed rail lines and six-lane highways to cities that don’t need them? Or will it invest in more domestic consumption and services while offering to build the next generation of Chinese factories and supply lines in America and Europe with 50-50 ownership structures? We need to encourage China to make the right choices. But at least China has choices.
Compare that with the choices Trump is making. He is undermining our sacred rule of law, he is tossing away our allies, he is undermining the value of the dollar and he is shredding any hope of national unity. He’s even got Canadians now boycotting Las Vegas because they don’t like to be told we will soon own them.
So, you tell me who’s playing with a pair of twos.
If Trump doesn’t stop his rogue behaviour, he’s going to destroy all the things that made America strong, respected and prosperous.
I have never been more afraid for America’s future in my life.
This article originally appeared in The New York Times.
