Hopes that the latest round of trade talks between the United States and China would yield a quick bounty were dashed when they concluded without resolution Wednesday. While the discussions were described as “constructive,” both sides appear to be digging in. The difficulty of resolving the problem is compounded by domestic politics and geopolitical tensions that weigh on decision-makers. The world must brace for continuing acrimony between the two largest economies, and its likely spillover.
U.S. President Donald Trump is convinced that China is an unfair trader that has stolen U.S. jobs and intellectual property. He believes that the solution to that problem is unilateral U.S. pressure. He imposed tariffs on $250 billion worth of Chinese imports and has threatened more if Beijing does not change its policies and balance its trade accounts with the U.S. On Thursday, he tweeted that he intends to impose 10 percent tariffs on $300 billion more worth of Chinese imports, effective Sept. 1. Trump is not only confident that the U.S. would prevail in a trade war, but that such a conflict will be easy to win.
China has proven more stubborn than Trump reckoned. It responded to his tariffs with sanctions of its own on $110 billion of U.S. products. Beijing insists that any trade deal be preceded by the lifting of U.S. sanctions, a demand Trump rejects because he does not want to lose leverage. Talks have been deadlocked as a result.
Many economists and policymakers agree that Beijing treats trade partners unfairly. They point to its policies designed to promote Chinese industries in a range of critical sectors and efforts to extract intellectual property from foreign competitors by official policy and theft.
Yet even those who back the U.S. bill of grievances take issue with Washington’s tactics. The resort to tariffs is problematic because it invariably leads to retaliation. It is far better to work together with like-minded governments in multilateral institutions to tackle this problem. Instead, the U.S. is waging trade wars with many of the countries that should be its ally in this dispute.
Trump’s personality also looms large over these negotiations. His belief that he is “the master of the art of the deal” heightens unpredictability, which he thinks is a net plus. Rather than leaving negotiations to his team, Trump weighs in publicly in ways that can only harden China’s position. He has complained that China reneged on previously negotiated text; that Beijing promised to buy U.S. agricultural products and then failed to do so; and that Beijing wants to delay talks in hopes that Trump will lose his re-election bid and get a better deal from his successor. China denies all the accusations.
Most observers believe the president’s escalating rhetoric is proof the talks are stalemated. This week’s negotiations ended a little early with no official statements and reports that talks would resume in September. Several other factors will assert themselves by then.
First, there is the U.S. political calendar. Congress is now in recess. Legislators have gone home to their districts and voters — especially in farm communities — will be complaining about economic woes. This will feed into the U.S. election campaigns, both congressional and presidential, which are taking off. There will be mounting pressure on Trump to have a trade win to tout.
Chinese politics also matter. Chinese President Xi Jinping must balance the need to manage relations with the U.S. — hostility cannot dominate ties — with Chinese nationalism that prevents him from taking action perceived as too accommodating. His consolidation of power has made him domestic enemies who are looking for cudgels to use against him. A slowing economy, brought about by U.S. trade sanctions, is one weapon.
Then there are mounting regional tensions. Relations between China and Taiwan are deteriorating and the U.S. has played a role in that downturn by announcing arms sales and by recently allowing Taiwan President Tsai Ing-wen to make an extended transit in the U.S. North Korea is becoming more provocative, testing missiles and complaining about the U.S. failure to be more accommodating in talks over its nuclear weapons program. In both cases, the U.S. and China must work together to craft solutions; trade disputes complicate those efforts.
Japan must brace for the impact of the U.S.-China trade dispute. If talks drag on, there will be pressure on U.S. negotiators to get a “win” in bilateral trade negotiations with Tokyo. In addition, U.S. tariffs are having an impact on the Chinese economy and a slowdown is being felt among its trade partners, including Japan. Tokyo should press on with efforts to reform the multilateral trade system, in particular, strengthening the World Trade Organization so that it can deal with problems posed by China’s industrial policies and trade practices. Japan can then work with the U.S. in that forum to address the China challenge. Any enduring solution demands a decision in Washington and Beijing to resolve this dispute; thus far there is no indication of any will to do so.