US Policy Strategies » Foreign Policy

WSJ-Deter China By Turning Taiwan Into a Porcupine

mariel — Wed, 04 May 2022 20:35:20 +0000

Western allies should accelerate the sale of F-16s, missiles, drones and other force-multiplier weapons.

By Phil Gramm and Roger Wicker

May 4, 2022 12:38 pm ET

The paramount lesson from the Russian invasion of Ukraine is that repeated threats of economic sanctions didn’t deter Vladimir Putin from launching an all-out invasion. This offers a warning for Taiwan, the U.S. and their allies as threats from China loom.

The long history of sanctions, embargoes and economic blockades strongly suggests they are difficult to enforce, entail significant costs to the nations imposing them, and trigger market forces that eventually override them. Benefits flow to countries that don’t enforce the sanctions. The enforcement challenges grow significantly if the economy of the targeted nation is large, and as the size of the target country increases, the deterrent effect of threatening sanctions loses credibility.

Since the Chinese economy—one-sixth of the world’s economy—is 10 times as large as the Russian economy, effective sanctions would be virtually impossible to enforce. Relying on threatened sanctions to deter a Chinese attack on Taiwan could therefore entice aggression that could pull the U.S. into a war with China, an event that would alter the course of world history.

Thankfully, there is a far more effective deterrent. Taiwan is an island roughly 100 miles off the coast of mainland China. Unlike Ukraine, a large land army can’t be massed along its border. But because it is an island, supplies also can’t be delivered to an adjacent neighbor and clandestinely driven across the border. Any supplies delivered after an attack would have to be flown in or delivered by ship, putting the supplier directly in harm’s way. Supplying Taiwan on anything like the scale we have supplied Ukraine during a Chinese attack would be a logistical nightmare.

When China was an economic basket case, 100 miles of ocean was more than enough deterrent. But with China now an economic and military powerhouse, Taiwan’s lack of preparedness is increasingly dangerous.

Taiwan’s economy is two-thirds larger than Israel’s, but Taiwan spends almost two-thirds less as a percentage of gross domestic product on defense. U.S. support can’t be allowed to abet Taiwan’s neglect of its own defense. As Machiavelli observed, “nothing is so weak and unsustainable as a reputation for power which is not based on one’s own strength.”

The good news is that modern technology makes it relatively easy for Taiwan to afford weapons that would make the cost of invasion exceed any reasonable benefit. Ukraine’s valiant resistance has shown how highly motivated defenders with high-tech weapons can scramble the calculus of military power. Like David’s smooth stone that slew Goliath, two Ukrainian Neptune missiles sank the flagship of the Russian navy in the Black Sea. With 400 U.S. Harpoon missiles, costing only 0.3% of its GDP, Taiwan could imperil any Chinese warship in the Taiwan Strait. Modern sea mines are even less expensive, and Turkish Bayraktar drones, which have been so effective in Ukraine, cost less than $2 million each. Two hundred fifty million dollars would buy 5,000 Switchblade drones, which could devastate landing craft, armored vehicles, and small assault ships.

Taiwan already has two Patriot missile battalions and for $3 billion could double its air and missile defense. Stinger missiles, used to great effect in Ukraine, cost only $400 million for 1,000 missiles. Taiwan will have more than 200 F-16 fighter jets by 2026, including almost 70 of the newest Block 70 aircraft. With additional F-16s and other aircraft being retired from the U.S. Air Force, more aircraft could be made available at their depreciated value.

If the U.S. and its allies are willing to accelerate the sale of these and other force-multiplier weapons at cost, Taiwan could totally upgrade and harden its defenses by simply raising its defense budget from 2% to 3% of GDP. At that level, Taiwan could fund all these weapon purchases over a five-year period. Sustaining its defense outlays at 3% of GDP would allow Taiwan to continue modernizing its defenses while spending at a level roughly equal to Israel’s defense expenditures in real dollar terms.

With these investments, Taiwan should focus heavily on training for new weapons systems. It should also consider transforming its army from the current conscript system into a smaller voluntary force that would better accommodate a defense system based on the power of modern technology. Citizens who would have otherwise been drafted could be trained in high-end weaponry and kept in reserve or home-guard forces that could be activated in emergencies.

The primary objective of the U.S., its allies and Taiwan isn’t to repel a Chinese attack but to prevent it from ever occurring. Effective deterrence is the key to national security.

Any wolf has the ability to kill a gentle porcupine. And yet such an attack virtually never occurs in nature. The defense of the porcupine’s quills, which can rip through the predator’s mouth and throat, is the deterrent that protects the small creature in the violent woods. Through the force-multiplying miracle of modern weapons, we can help make Taiwan a porcupine and deter aggression that could have profoundly negative consequences for Taiwan, China and the world.

Mr. Gramm is a former chairman of the Senate Banking Committee and a nonresident senior fellow at the American Enterprise Institute. Mr. Wicker, a U.S. senator from Mississippi, is in line to become the chairman of the Armed Services Committee if Republicans control the Senate next year.

WSJ: Understanding the Trump Trade Agenda

mariel — Fri, 02 Dec 2016 14:56:25 +0000

Returning to the 1950s is impossible. But currency manipulation does hurt American workers.

By PHIL GRAMM and MICHAEL SOLON

If President-elect Trump is to establish a pro-growth trade policy, he must build upon America’s postwar trade history. A lesson from that history is that if trade policy is to reinforce tax reform and regulatory relief in promoting economic growth, it must become more fair, not less free.

After World War II the consensus for free and open trade was strong. Scarred by the economic destruction wrought in the Great Depression by the 1930 Smoot-Hawley tariff and sobered by the challenges of rebuilding Europe and Japan and stopping the spread of communism, most Americans concluded that protectionism wasn’t a viable national policy.

The U.S. had emerged from the war, to borrow FDR’s phrase, as “the great arsenal of democracy.” Its productive capacity was intact, and it was blessed with a modern capital base and a trained and highly motivated labor force. With much of the developed world in rubble, America was to enjoy a virtual monopoly in manufacturing for a quarter-century.

The 1950s and ’60s are today viewed as the Golden Age of American manufacturing. In 1938 the United Kingdom exported more manufactured products than the U.S., while Germany, France, Italy and Japan combined exported more than twice as much as the U.S. But by 1953 U.S. manufacturing exports were nearly twice as large as the U.K.’s and a third more than those of Germany, France, Italy and Japan combined. In the 1950s real wages in manufacturing leapt 37%—22 times the growth rate of real manufacturing wages in the 1970s.

Incredibly, this anomalous period—the product of a global war that left Europe and Asia in ruins and 50 million people dead—has become the political benchmark for America’s industrial performance. Its passing is now viewed as evidence that trade has hurt America.

By the mid-1970s, Europe and Japan had been rebuilt and Korea and Taiwan had become industrialized. A system of wealth creation based on trade and market-driven economies was beginning to crush the Soviet Union, transform China, win the Cold War and bring economic opportunity and greater prosperity to billions. By 1976 American manufacturing as a percentage of global exports had fallen back to its prewar levels.

Just as the postwar period ended, another transformation was afoot. In 1978 China came into the world market, followed by India, Brazil, Turkey and, after the collapse of the Soviet Union, Russia and Eastern Europe. The supply of labor available for the production of global exports spiraled upward between 1978 and 2000. The world’s capital-labor ratio fell, increasing the relative returns to scarce capital while lowering the relative returns to abundant labor.

Once again, Americans were the greatest beneficiaries of these changes. The U.S. had accumulated approximately one-third of the world’s physical capital and roughly the same share of the world’s human capital—based on the level of postsecondary education. But it supplied only 4% of the world’s labor. Some Americans lost, however, especially unskilled workers.

Even as U.S. production of manufactured goods continued to rise at an increasing rate, the demand for relatively unskilled labor was further depressed by computer-based automation. According to a study last year by Ball State University, between 1990 and 2000 automation had an effect on manufacturing jobs that was 6.6 times bigger than the effect of imports. Living standards in America have continued to rise—faster when U.S. economic policy fostered growth and slower when it didn’t—but unskilled workers have fallen further behind.

Postwar trade agreements have actually improved America’s competitive position, as U.S. trading partners have generally lowered tariffs more than we have. After China joined the World Trade Organization, Beijing cut the average tax it imposed on foreign-produced goods from 14.6% in 2000 to 3.2% in 2014. But the U.S. didn’t change its taxes on Chinese goods. After the U.S. entered the North American Free Trade Agreement, Mexican taxes on U.S. imports fell from roughly 12.5% to zero and Canadian taxes on U.S. goods dropped from roughly 4.2% to zero. In return, U.S. taxes on Mexican and Canadian imports fell from 2.7% to zero.

The largest source of unfairness in world trade today is currency manipulation, which distorts exchange rates and trade patterns, cheating consumers and producers. As President-elect Trump has repeatedly pointed out, by intervening in their currency markets, nations have been able to make the prices of their exports cheaper and the prices of imported goods more expensive.

Further, in virtually every trade agreement America has ever entered into, unfair trade provisions resulted from a series of special-interest deals—sugar being the most famous. Today, according to our analysis of Agriculture Department data, for every producer benefiting from the U.S. sugar tariff, 70,983 American consumers are cheated by sugar prices 50% higher than world prices.

If Mr. Trump convinced the WTO to ban nations from intervening in their currency markets except in emergency conditions, and if he renegotiated trade agreements to remove special interest deals, he would help American workers and raise world living standards as well.

While the real wages of unskilled workers have stagnated over the past 30 years, the premium earned by Americans with a four-year college degree has more than tripled, according to a recent study by the University of Chicago’s Kevin Murphy and Robert Topel. As the return on human capital continues to rise, more effective policies are needed to help workers acquire skills. Mr. Trump’s proposal to unleash the talent of students now trapped in failing public schools by empowering their parents with greater school choice will have a positive, significant and lasting effect on wages—bigger than any change in trade policy can bring.

Above all, pro-growth policies are critical, especially tax reform that encourages investment and regulatory relief that liberates productivity advances. From 1900 to 2000 employment in agriculture declined from 41% of the workforce to 1.9%, but because America employed pro-growth policies—except during the Great Depression—the number of jobs in the country rose almost fivefold and the average real income rose eightfold.

Eliminating currency manipulation and special-interest provisions in existing trade agreements will benefit American workers, raise world living standards and reinforce the impact of Mr. Trump’s recovery program. Industrial policies that seek to reward or punish businesses based on where they invest will impede the recovery or doom it, as will protectionist policies that restrict trade. Wages are stagnant in America today not because we have too few taxes and restrictions on international trade, but because we have too many taxes and restrictions on domestic trade here at home.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute. Mr. Solon is a partner of US Policy Metrics.