An end to the U.S.-China trade war may be imminent. Both governments are now optimistic that an agreement can be worked out, and U.S. President Donald Trump and Chinese President Xi Jinping can close the deal at a “signing summit” in a few weeks. While the end to the trade war is to be welcomed, it is hard to be optimistic about the possible deal, if reporting of its contents is accurate.
There is little disagreement with the claim that China is an unfair trader, using the leverage of its mammoth domestic market to extract concessions such as technology transfer from companies that seek to do business there or tilting the market to favor homegrown competitors. The Trump administration has sought to level that playing field primarily though the use of tariffs on Chinese exports to the United States. Last year Trump imposed tariffs of 10 percent on some $200 billion in Chinese goods and threatened to increase them to 25 percent if the two governments could not reach a deal that rebalanced bilateral trade — China currently has a surplus with the U.S. that exceeds $400 billion — but suspended their application for 90 days after he had dinner with Xi last November.
That increase was scheduled to take place March 1 but Trump this week postponed that move to give negotiators more time to wrap up the talks. He tweeted that there had been “substantial progress in our trade talks with China on important structural issues including intellectual property protection, technology transfer, agriculture, services, currency, and many other issues.” Noting that “we’re getting very, very close,” the U.S president said that he expected to host Xi for a signing summit at his Mar-a-Lago estate “fairly soon.” China’s Xinhua news agency appeared to agree, reporting that both countries are “closer to reaching a mutually beneficial and win-win agreement.”
While markets rejoiced at the news, posting gains in the aftermath of the reports, there is ambivalence among experts. So far, no details of the talks have been released and there is concern, especially among his hard-line supporters, that Trump will settle for minor concessions to claim a win, rather than the structural reforms that are needed — and which China is very reluctant to make.
It is widely believed, for example, that China is ready to make large purchases of soybeans and liquefied natural gas to help rebalance the trade accounts. Beijing has also reportedly urged the U.S. to reroute supply chains so that products such as semiconductors go from plants in the U.S. directly to China, rather than via Southeast Asia or Mexico (where they are tested), a change that will impact trade accounting but have no real effect on trade flows — except to hurt countries that currently test the chips.
It is also worrisome that the U.S. is urging China to manage its currency to prevent excessive depreciation. While currency stability is a laudable goal, it is dangerous to agree to government manipulation of the market.
Perhaps even more alarming is Trump’s comment that he is prepared to intervene in judicial proceedings against Huawei, the Chinese telecommunications company whose chief financial official is being held in Canada pending extradition to the U.S. on charges of bank and wire fraud, violations of U.S. sanctions on Iran and conspiracy to obstruct justice. That sort of action completely undercuts the complaint by the U.S., other governments and human rights groups that the rule of law requires an independent judiciary and not one subservient to the needs or whims of political elites. Not only does it erode U.S. credibility but it also encourages hostage talking to gain leverage in other disputes.
Trump’s turnaround has been prompted by weakness in the U.S. market, which he has used as one of the most important benchmarks of the success of his administration. After the Democratic Party’s victory in November’s midterm elections, Trump is also concerned about shoring up his support as the 2020 presidential race begins. He wants to expand trade opportunities for important constituencies, such as farmers, and getting the Chinese to drop tariffs they imposed on U.S. goods in the aftermath of his decision to do so, is a quick way to achieve that.
Japan will welcome termination of the U.S.-China trade war and a return to normal practices. While Tokyo should be happy with a deal that ends Chinese predatory behavior, it is unlikely that this agreement is that deal. Equally troubling would be a belief in the U.S. that tariffs is the best way to achieve results. An end to the U.S.-China trade war would likely mean a shift in Washington’s attention to trade talks with Japan. Lessons learned from the first trade fight must be the correct ones. The idea that bullying, unilateralism and disregard for internationally accepted rules are acceptable is not among them.
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