Progress has apparently been made in the trade war between the United States and China. After several rounds of negotiations, U.S. President Donald Trump is reportedly ready to postpone his deadline for the imposition of higher tariffs on Chinese goods. That is a promising sign because U.S. action would prompt a tit-for-tat rejoinder by Beijing. While Chinese behavior needs to change, unilateral action by Washington is not the way to achieve that objective. A multilateral approach that uses the rule of law rather than presidential pique is the only way to obtain significant and enduring results.
Trump believes that China is an unfair trader, exploiting the open U.S. market, stealing intellectual property and forcing the transfer of technology to help Chinese businesses and gain an advantage in the economic competition between the two countries. He has demanded that China reduce and eventually eliminate its $300 billion trade surplus with the U.S., and adopt structural reforms that end the benefits Beijing confers on domestic industry. To bring about that change, he has imposed a 10 percent tariff on $200 billion worth of Chinese imports. That number was set to jump to 25 percent, but Trump pledged in December to suspend the increase for 90 days to allow the two governments to negotiate a settlement. This week, he said he was prepared to delay that March 1 deadline if there was progress in the talks. Reports that the Chinese economy is growing at the slowest pace in three decades could encourage Trump to wait and let pressures mount on the Chinese leadership.
Pushing back the deadline was similarly intended to prod Chinese negotiators to be more accommodating when they met their U.S. counterparts, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, in Beijing this week. A final deal will depend on Trump and Xi meeting to hammer out details and to ensure that the U.S. president gets credit for any agreement.
While a deal is likely — eventually — that does not mean that a solution will emerge. There is near unanimity that China has tilted its domestic market to favor national champions, but there is little support for the U.S. remedy for that problem. U.S. unilateralism has alienated the partners it needs to create a united front demanding significant changes in Chinese behavior. Washington’s disdain for the World Trade Organization, the principal venue for addressing complaints about trade practices, has not helped. Admittedly, the WTO must be reformed to deal with many of the problems that the Trump administration and others have identified, but the U.S. inclination to sidestep or weaken the institution is wrong-headed.
China has reportedly offered to significantly increase its purchase of U.S. goods to help balance the trade account. That will allow Trump to declare victory, and trade hawks in the U.S. fear that the president will take a win that does not solve the real problem. Beijing is also said to have offered to open sectors of its economy to U.S. companies, but such promises are long-standing.
Those delays go to the heart of the problem. First, previous agreements lack enforcement mechanisms. When China joined the WTO, there was a “safeguard” mechanism to protect against surges of imports into the U.S.; that provision expired, however, and Lighthizer is reportedly considering the creation of a similar mechanism to prevent Beijing from ignoring commitments in any new deal.
Second, the Chinese leadership cannot afford those structural changes. It would make them look weak — as opposed to the tactically shrewd move of buying off the U.S. president — and it would undermine their commitment to mastery of the technologies that Beijing has deemed essential to forging a competitive 21st century economy, which is the foundation of China’s return to its rightful place as a regional and global power.
Japan has many reasons to be concerned about developments. The ongoing trade war will profoundly impact Japanese companies, whose supply chains run through China and whose products will become more expensive as a result of U.S. tariffs. If the U.S. settles the fight, Tokyo should expect Washington to shift its focus to our bilateral trade negotiations and use similar threats against Japan in the talks. Moreover, Japan should be troubled by U.S. efforts to undermine the WTO, which is the real place to handle such disputes.
A trade war between the world’s two leading economies would be a disaster. An outcome that validates unilateral action in trade disputes is no better. Those two choices undermine hopes of a successful and positive resolution of the U.S.-China trade war.
IN FIVE EASY PIECES WITH TAKE 5