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Investor Brief: Kirsten Gillibrand And The China Factor

Summary

Investors need a detailed understanding of each presidential aspirant’s foreign policy vision and position regarding issues impacting the US-China relationship.

Gillibrand’s foreign policy vision does not yet have unifying themes and is issue-based.

She has a background in Asian studies, was at one time proficient in Mandarin; her limited expressed concerns to date are mostly consistent with traditional Democratic positions.

Most likely the Chinese would view Gillibrand as someone they can work with, although frictions would probably persist in the US-China relationship as China pursues rejuvenation, and as Gillibrand seeks to restore a sense of fairness in the domestic economy and hold China to its international commitments.

Current situation

Donald Trump and his trade team have been instrumental in upsetting the world trade order and creating volatility and uncertainty in the stock markets. A primary factor has been an unrelenting focus on China, especially with regard to the trade deficit and the long-standing complaints lodged by business and technology companies having to do with IPR violations, forced technology transfers, lack of market access, non-tariff barriers, and cyber theft. There is also the belief in the national security and the defense establishment that China is a looming threat across multiple fronts including the South China Sea, cyber security, and the race to control the key technologies of the future that can be used in weapon systems as well as for domestic economic applications.

Trump’s views on China were developed over many years as he complained about how China was taking advantage of the US and hollowed out US manufacturing prowess. He voiced no concrete solutions to dealing with China other than he would use his instincts, knowledge of business, negotiations skills to change the US-China dynamic, as well as impose tariffs. Other issues that were of concern to past administrations, US politicians, and allies such as human rights and climate change were of secondary concern.

China has also become a convenient foil for Trump to use as a distraction from a whole host of negative stories about him and his associates that occupy the daily news cycle and to rally his supporters by showing that he can be tough and defend his base’s interests by pressuring US manufacturers to re-shore operations in the US, claiming that deals have been made to benefit them, and by having ‘nationalists’ in his administration take the lead in country-to-country negotiations.

The core Trump trade negotiations team has no deep substantive China experience other than as adversaries or in diplomatic or journalist roles. State department foreign service officers are not called upon to any great extent and other federal agencies and the traditional private sector sources of China expertise are marginalized. This model seems to suit Trump who has expressed suspicion about the ‘deep state’ and seems to believe that he alone is capable of taking on foreign leaders in one-on-one sessions. Clearly this way of conducting foreign policy is not in the best interests of US economic and national security interests.

It is against this backdrop that investors may view the many aspirants interested in becoming the 2020 Democratic Party Presidential candidate. As potentially viable aspirants emerge, the author will attempt to assess their views regarding China so that the reader may have a basis for determining whether the aspirant can add stability to US-China relations within their overall foreign policy vision, and how investment decisions and markets may be impacted.

Kirsten Gillibrand

Gillibrand announced the launch of an exploratory committee to raise money for a possible bid for the 2020 presidential campaign on January 15th on the Colbert Show. In her appearance and with the release of a video highlighting her record, there was no mention whatsoever of foreign affairs. As appears to be the case with the other Democratic contenders who have officially announced their presidential intentions (Elizabeth Warren, Kamala Harris, John Delaney, Julian Castro, Richard Ojeda, Tulsi Gabbard, and Pete Buttigieg)the primary focus of Gillibrand is on social and economic issues. To date, only Warren has articulated a cohesive foreign policy vision.

Background

Gillibrand attended Dartmouth College and the UCLA Law School, then in 2006 after several years as a corporate lawyer, she decided to run for Congress as a Democrat in a solidly Republican upstate New York district, against a four-term incumbent. She had no name recognition, and was warned against running, but she recognized that city people were moving upstate. She tied her opponent to George W. Bush and the war in Iraq, and raised huge amounts of money. She advocated for an expansion of Medicare but also adopted conservative positions on immigration and guns (earning an A rating from the National Rifle Association). Then luckily for her, a few days before the election, a personal scandal derailed her opponent’s campaign, and she won by six percentage points.

She joined the Blue Dog Democrats in the House of Representatives and adopted a conservative Democratic line, including embracing efforts to make English the national language. But, in a preview of her later populist stance, she voted against the 2008 bank bailout. A year later she became the youngest member of the U.S. Senate, when Governor David Paterson appointed her to fill Hillary Clinton’s seat after she became Secretary of State in the Obama Administration. Her elevation to Senator with a state-wide platform, allowed her to advocate for more liberal and progressive positions such as for same-sex marriage, and repeal of Don’t Ask, Don’t Tell for the military. She also abandoned her previous positions on guns and immigration. The NRA then lowered her rating to an F.

Some observers see Gillibrand as a calculating chameleon and opportunist. Understanding that her ‘transformation’ will place her under attack in primary states by her Democratic competitors, she has said that she is “ashamed” of her previous positions; “I just think, as I’ve gotten older, I’ve learned more about life, and sometimes you’re wrong,” “and you’ve gotta fix it”. “And if you’re wrong, just admit it and move on.” Given that Trump moved away from various political positions he held at various times prior to his White House run, albeit he had no governing political philosophy, it seems that in today’s political world that re-inventing one’s self to ‘go with the flow’ of the times and not to be seen as an outlier by one’s party, has become the overarching strategy to stay in the conversation.

Gillibrand has also proved to be insightful regarding issues that were not receiving the attention that perhaps they should have been. In 2014, three years before the #METOO movement, she spoke of sexist remarks from male lawmakers. Then in 2015, she talked about subtler forms of sexism that she had personally encountered as a corporate lawyer.

As the Democratic Party has become more progressive and some younger party members are moving farther to the left, Gillibrand has followed the flow, embracing an economic-populist platform, including an endorsement of a federal jobs guarantee, training for those who lose jobs to automation, and a tax on financial transactions in the stock market. Also, she now supports Medicare for all, rejects corporate PAC money, and the legalization of marijuana. Some of these positions are considered to be quite radical for a New York Senator whose constituency includes large financial institutions and considering the large sums of monies that Goldman Sachs contributed to her campaigns.

Given that Gillibrand is not well known outside of New York, for example in Iowa where she has recently visited, and how she might be typecast by Democratic primary opponents, her prospects for securing the nomination seem to be poor. Currently she is in 10th place. However, considering that Trump’s re-election team has recently criticized her, it means that she and the other potential female candidates (Elizabeth Warren and Kamala Harris) are considered as being a threat, and may potentially be Vice Presidential candidates on the Democratic ticket, so it is likely that she will stay in the mix.

Foreign Policy

Gillibrand is on the Senate Armed Services Committee (along with Elizabeth Warren) and as is typical with others seeking higher office or influence in national security matters, she can point to her overseas travel to war zones (e.g., she visited Iraq in 2007 as a member of the House Armed Services Committee), meeting with foreign officials, and receiving briefings by senior military commanders to bolster her knowledge for the position of commander-in-chief.

As for military related issues, she has used her Armed Services position to combat sexual assaults in the military and has pushed for a sweeping change to the Uniform Code of Military Justice that would take the decision to prosecute sexual assaults and most other major crimes out of the chain of command and put it in the hands of trained lawyers. Although she wasn’t successful in accomplishing this, she has become the leading spokesperson on the issue.

Gillibrand has also taken on the Trump administration’s ban on transgender troops, introducing legislation in 2017 that would allow transgender people currently serving to remain in the military. Note that on January 21, the Supreme Court allowed Trump's transgender military ban to go into effect. The Justices did not rule on the merits of the case, but will allow the ban to go forward while lower courts work through it.

As for specific issues, her positions are as follows:

Trade: She sides with Trump on the renegotiated North American Free Trade Agreement. She also agrees about ending a system of tribunals that resolve trade differences. But she wants to see more environmental protections and increased sales for dairy farmers who trade goods with Canada.

Afghanistan and Syria: For years, Gillibrand has pushed for the US to withdraw from Afghanistan. She has opposed efforts to arm Syrian rebels and she criticized Trump’s ordering of strikes against Syria in the spring 2018 , saying Trump did not have the authority to order them. She has also argued that Obama did not have authority to send US troops to Syria.

Saudi ArabiaGillibrand co-sponsored legislation that would end US support for the Saudi-led conflict in Yemen. With regard to the murder of journalist Jamal Khashoggi, she wrote that the US should hold the Saudi government accountable but hasn’t said whether she believes that Crown Prince Mohammad bin Salman was personally responsible for ordering or complicit in the killing.

China Knowledge

Gillibrand was an Asian studies major at Dartmouth, studied for six months in China and Taiwan in 1986, and became proficient enough to absorb stories in Chinese newspapers. She later spent four months in Hong Kong as a corporate lawyer.

Although her Chinese language ability has diminished, she still tries to converse when appropriate especially with reporters from the Chinese language media, who have found her pronunciation to be good.

In advance of Trump’s summit with Xi Jinping in Mar-a-Lago in April 2017, Gillibrand signed on to a letter to Trump along with other Democrats calling for a tough stance with regard to having China adhere to its international trade obligations, which “China has consistently failed to comply with”. In particular, Gillibrand and the others urged Trump to have China commit to, restrict, or otherwise deal with issues that are trade distorting, impact the ability of US companies to fairly compete, and have disadvantaged US workers, including:

  • Overcapacity in aluminum and steel production which has led to the layoffs of thousands of US workers.
  • China’s nonmarket economy which provides subsidies and otherwise supports its industries, causing uncompetitive market conditions and market concentration. Also, China exercises significant control over factors of production through State-owned- Enterprises.
  • Currency manipulation which allows China to undervalue its currency to boost exports and thus acts to the detriment of American manufacturers.
  • The 2015 Industrial espionage agreement between Xi and Obama which stated neither government would “conduct or knowingly support” cyber-enabled theft of intellectual property, needs to be adhered to and expanded.
  • Also the need to have China commit to effectively deal with piracy of intellectual property and trade secrets and control the sales of counterfeit, low quality merchandise, so as to protect the value of the Made in America brand.

What’s missing

Despite being a member of the House and Senate since 2007 and serving on the Armed Services Committee of each, it does not seem that Gillibrand has articulated a cohesive foreign policy vision in terms geared to safeguard the national interests of the US and how the US can achieve its goals in terms of its international relations. At the very minimum to become the Democratic Party presidential candidate, she needs to address her perspective of the:

  • US national interests
  • current state of internal security threats and those emanating from the external environment
  • key national values underpinning America
  • foreign policy goals of other nations or actors that the US must be concerned with (e.g., Russia, China, North Korea, Middle East, terrorism) and the nature of the international power structure and the factors that the US needs to strengthen to secure the national interests

Taking Elizabeth Warren as an example plus other progressives such as Bernie Sanders poised for the Democratic candidacy, Gillibrand who has not been a true progressive, might start by at least introducing into her stump speeches and interviews:

  • what she sees as the threats to our national security and democracy
  • how to deal with climate change
  • inequality in American society and how to change the dynamics
  • regime change and military intervention
  • human rights

Previous assessment

https://seekingalpha.com/instablog/49923298-jack-fensterstock-aka-sinoamerican/5255246-investor-brief-elizabeth-warren-china-factor