Does China have a better economic system than does the USA? Has capitalism become so corrupt that China's system actually is more accountable to world economic needs? Steve Bannon, now in the news for saying Huawei should be crushed doesn't think so; he could be very wrong.

Steve Bannon, who was Donald Trump's vanquished presidential adviser, is an economic nationalist. He says economic nationalism is Trump's strength and something he campaigned for. After all, Donald Trump has said in 2016, at a rally, that China is raping the USA, and other nations are hurting the USA with trade deficits. Bannon is at the forefront of this movement, having recently said that POTUS45 will never back down from his position against Huawei.

Truth is, the jury is out on whether Donald Trump believes Huawei is any more dangerous than another other cell phone company. After all, he also said he could make a deal that includes Huawei. But the idea of economic nationalism appeals to Donald Trump.

We know that Bannon wants Huawei destroyed. He said it is 10 times more important than a trade deal. I actually think that, while this would cause short term pain, ultimately it would do China a huge favor if Trump takes his advice and crushes the 5G/Smartphone company. It would make China more independent of the United States. Bannon falls back on the 1974 Trade Act, specifically sections 201 and 301, which is a US law only. That act has no international status regarding the transfers of tech within sovereign nations. Yet the government is beginning to box itself into commitment to the bad law.

But what if America's version of economic nationalism is forever flawed? Ask yourselves, are you comfortable that Amazon and GM and Whirlpool and Trump's son in law, Jared Kushner, are not paying taxes so that America is starved for taxable income and the deficits are massive? Yet we know that China collects lots of taxes and always has enough money to subsidize favored industry and agriculture.

Ag subsidies are a reflection of China's desire to give something back to rural China, where once most taxation took place when farmers made up 80 percent of the population. Now, these farmers feed 1.4 billion people. The source has to be secure. And Trump tariffs resulting in cutting out American farmers when they sold a lot of product to China is just absurd. We may never get the Chinese back as soybean customers. 

China still has 1/3rd of its massive population engaged in farming. The USA employs 2 percent of its population in farming. Two percent is a joke. We have mechanized everything. Small farmers make it in China, while big tech farmers make most of the money in the USA. Which system is better, more family oriented, more central to a past way of life in the US? Most people would choose the Chinese system of small farms, but Trump wants that system to go away. It requires subsidies.

The US is so controlled by industry that the government cannot even collect a decent tax. And if the truth be known the US government is in a race to the bottom with other nations to see how low corporate taxation can go.

Council on Foreign Relations and the CPD

The Council on Foreign Relations has said that China's 2025 plan is a security threat to the United States. China counters by saying that the US had tariffs and indeed had larger tariffs in the days of industrialization. China argues that in order to escape the middle-income trap it cannot simply settle. It appears that China has a strong argument as we see by the chart. Click to expand:

(Click on image to enlarge)

Bannon Will Help China

If Bannon's point of view prevails, it could help China. China will no longer have to deal with an annoying and arrogant nation that writes internal laws that it expects the world to follow. China will still be able to deal with Europe and Japan as they need China, and Trump wants to limit trade with them as well based on the same bad law that pits us against China. Keep in mind though that Europe is afraid of its own shadow, and could bow to the US in exchange for leniency from Trump.

As Israelis have said, China is the future of technology. But if the US does not need China because of security and China does not need the USA because it makes 5 times the goods, we should divorce and see how our stock market, symbol of USA prosperity, does going forward. We should see how our capitalism stacks up against China's mixture of capitalism and socialism. It would be better if this divorce were not based upon a war footing, but rather a divorce that allows each nation to function peacefully in its own sphere. It will likely do damage to both economies, but Bannon and the others want it in the name of national security. If they fail, these radical thinkers can be forever booted from the American political landscape. 

China has proven that it is the only engine of world growth (along with India). The US has proved that is an engine of slow growth, of minor growth. And even that cannot continue if the two nations divorce. It is amazing to me that China bailed out the USA in the Great Recession and yet these Trump allies like Bannon and Gaffney treat China with so little respect:

...the Chinese launched the world's biggest investment program after the start of the financial crisis. Without their spirited course of action, the world economy could very well have imploded. Beijing's stimulus program amounted to about 13 percent of Chinese gross domestic product, making it almost twice as large as the US program and close to five times the size of its German equivalent. Obama's economic team has been deeply impressed by the success of China's stimulus policy.
The discussion that has begun in China over curbing government spending and tightening liquidity is happening too early for Obama's taste. When he visits Beijing, he will try to encourage the Chinese to continue playing their role as the principal driver of the world economy.

I predict that China will prosper while the USA will not be so successful. It can't be. Asia has 6 billion upwardly mobile people! The west has no such customers! The west has a declining middle class that will not increase without more customers. While the US has more upwardly mobile people going from middle to upper, mainly because of the manipulated stock market, Europe and Japan have no such luxury.

We know that there are about 900 companies from the USA operating in China. China may find it necessary to either give those companies the choice of moving headquarters out of the USA or ceasing their businesses in China. And if subsidies are so horrible, why are these 900 companies trying to do business in China? It is because that is where the customers are, where the economy is powerful!

Steve Bannon just might expose our weakness. with his radical plan to destroy China tech. If the US was the engine of growth it once was, if the US was doing investment in other nations like China's Belt and Road, if the US was not wasting all excess money on the military, if the US had the strength of the '50s and '60s but with a more benevolent attitude, this nation could be a force for good. We could convince the world that we are better.

But if we fall back to the past, to cold war mentality from a position of weakness, China would be better off going its own way, being left alone. And Bannon will have helped that nation isolate the USA which may be exactly what our leaders want. 

It is time for Trump to lay his cards on the table. Is he an economic nationalist or a pragmatic compromiser? If he really is an economic nationalist, not in the Westphalia Tradition of mutual respect, but rather more like a zero-sum bully, then China feels assaulted. If Trump demands that China opens markets, as the west has done for hundreds of years, then he needs to modify his behavior. Our nation needs a man who wants world prosperity as leader, not a cold warrior against a nation that doesn't even want to fight one.