The danger lurking behind the U.S.’s reciprocity policy

API Geoeconomic Briefing is a series provided by the Asia Pacific Initiative, an independent think tank based in Tokyo. The series will look into geopolitical and economic trends in the post-COVID-19 world, with a particular focus on technology and innovation, global supply chains, international rule-making and climate change.

Amid the escalating feud between the United States and China, Washington is stepping up its responses toward Beijing based on the idea of reciprocity, which is granting another country equivalent treatment in return for the treatment it gives in terms of diplomatic and trade policies.

In a statement titled “Advancing Reciprocity in U.S.-China Diplomatic Relations” that U.S. Secretary of State Mike Pompeo released on Sept. 2, he said that the U.S. will tighten restrictions on the activities of Chinese diplomats in the country under the principle of reciprocity.

The statement noted that Washington is compelled to impose certain new requirements on Chinese diplomats in response to Beijing’s longstanding restraints placed on U.S. diplomats and its refusal to respond to sustained requests by the U.S. for improvements.

It says senior Chinese diplomats will need approval from the State Department when they need to visit university campuses or meet with local government officials in the country.

The U.S. is ready to ease the restrictions should China do the same, the statement added.

Expelling journalists

A series of retaliatory moves involving the expelling of journalists, taken this year by both the U.S. and China, is yet another example of reciprocal actions.

In February, China revoked the press credentials of some Wall Street Journal reporters based in Beijing as a punishment for an opinion piece the publication put out titled “China is the real sick man of Asia.”

Following Beijing’s move, Washington limited the number of Chinese nationals who could work as journalists in the United States. Beijing responded by ordering more China-based reporters from the Wall Street Journal, as well as many at The New York Times and the Washington Post, to return their media passes.

In May, the U.S. issued a new rule to tighten visa regulations for Chinese reporters, limiting their stays to 90 days. And in June, the American government designated four Chinese media outlets as foreign embassies, increasing restrictions on their operations in the U.S., in addition to five outlets placed under similar restrictions in February.

As a result, both ended up reducing the number of each other’s journalists in their countries.

The idea of reciprocity, mentioned in Washington’s new national security strategy released in 2017, has recently been more strongly reflected in the policies adopted by President Donald Trump’s administration.

In addition to restrictions on Chinese diplomats and journalists, such reciprocal policies include canceling visas of Chinese graduate students and researchers with links to universities affiliated with the Chinese People’s Liberation Army, banning downloads of Chinese-made TikTok and WeChat apps and using tariffs in trade negotiations.

Taking reciprocal measures to urge a foreign nation to get rid of an unfair situation is an effective way to win domestic support and also to counter criticisms from the other nation by claiming that it is taking similar moves.

Reciprocity can be a straightforward and powerful policy tool when there are no other effective options.

Jimmy Lai, a Hong Kong media mogul and pro-democracy activist, tweeted on Oct. 1 that Trump’s reciprocity toward the Chinese Communist Party has been effective.

The power and comprehensibility of reciprocity makes it an attractive policy option, but some point out that expelling journalists from both countries posed a greater disadvantage to the U.S.

Lucas Tcheyan and Sam Bresnick wrote in an article published in Foreign Policy on Aug. 20 that the value of having journalists in China far outweighs the negatives of having Chinese media companies operating in the U.S., noting that the fewer foreign reporters in China with little press freedom, the more opaque the country becomes to the outside world.

Other experts also criticize “phase one” of the U.S.-China trade agreement signed in January, saying it cannot be regarded as a success since it failed to correct China’s unfair trade and business practices.

Reciprocity in trade

While experts’ views are divided on the adoption of reciprocity, it has been applied in trade negotiations in the past.

From the times of Adam Smith and David Ricardo up to today, standard economic theory assumes that regardless of the level of tariffs of its trading partner, a country with lower tariffs offers improved economic welfare for its citizens as low-priced imports lead to an increase in consumer surplus, thus benefiting consumers.

Then why is it common for a nation to urge its trading partner to cut tariffs on a reciprocal basis, rather than simply reducing tariffs on its own? It is because producers who will be hit by cheap imports have a stronger voice than consumers who will benefit broadly but thinly from lower tariffs. Therefore, it is not possible to realize tariff reductions beneficial for the whole economy due to domestic politics.

To overcome this, it is necessary for a government to make its trading partner reduce tariffs through negotiations so that it can gain the support of other domestic producers who would benefit from an increase in exports.

Such reciprocal actions taken to realize trade liberalization are described as “positive reciprocity.”

The United States raised its tariffs in 1930 under the protectionist Smoot-Hawley Tariff Act, but shifted its policy to positive reciprocity and enacted the Reciprocal Trade Agreements Act in 1934 under Secretary of State Cordell Hull.

This amendment to the 1930 act granted the president the power to make trade agreements with other nations on the basis of a mutual reduction of tariffs, incorporating the principle of unconditional most-favored-nation treatment — offering a trading partner the most favorable treatment given to a third party — and to permit a reduction of import duties of up to 50% of existing levels.

Although the U.S. was unable to stop the global waves of protectionism following the Great Depression, efforts to pursue free trade under the principles of reciprocity and most-favored-nation treatment bore fruit under the post-World War II framework of the General Agreement on Tariffs and Trade (GATT).

However, reciprocity includes not only the positive aspects of pushing for liberalization, but also the negative aspects of retaliating against those who fail to offer the same degree of benefits.

Typical examples of U.S. acts with a negative reciprocity nature are the Tariff Act of 1890, commonly called the McKinley Tariff, designed to raise tariffs to match foreign rate hikes, and Section 301 of the Trade Act of 1974 that allowed the U.S. to impose trade sanctions on foreign countries that either violate trade agreements or engage in other unfair trade practices.

Reciprocity can work both ways — it could become a driving force to build a free trade system or a factor that leads to protectionism and destroys free trade.

Risks of negative reciprocity

In an effort to suppress the negative and destructive aspects of reciprocity, the countries worked to place the most-favored-nation treatment at the core of their trade policies and embody reciprocity in the multilateral framework of GATT, succeeded by the World Trade Organization.

Such efforts resulted in the postwar growth of the world economy through bolstering trade, but it doesn’t mean the negative aspects of reciprocity disappeared completely.

Multilateral trade liberalization talks have been at a standstill since the Uruguay round of negotiations from 1986 to 1993. Many countries are unhappy with how the WTO functions and unilateral trade measures are frequently imposed.

What can be learned from the history of trade is that reciprocity can work positively to allow trading partners to reduce tariffs and further liberalize trade. But at the same time, it can work negatively to make a nation raise its tariffs to retaliate against its partner keeping tariffs high, prompting more protectionism.

Washington’s various reciprocal moves, including restricting Chinese diplomats’ activities and expelling Chinese journalists, could lead to a better balance with Beijing if it changes its stance, but could work conversely if the actions don’t result in China making any changes.

The meaning of reciprocity will differ greatly depending on how the recent developments turn out.

Double-edged sword

The U.S. is also moving to take reciprocal measures to restrict human exchanges with China.

Excessive control of human exchanges could lead to worsened balance and pose the risk of weakening the strength of the United States in research and development backed by contributions made by researchers and engineers from China.

Moreover, Chinese people who have studied in the U.S. are likely to be influenced by values of a free society.

It could serve the U.S. national interest more if it continued human exchanges with China and maintained its openness while taking measures against China’s influence operations and intellectual property theft.

There are cases in which a country should be determined to take reciprocal actions even if there is little possibility that its counterpart will change its stance.

Reciprocal measures don’t have to be regarded as a failure even if they don’t result in improved balance.

However, when taking reciprocal moves, it is important to carefully consider beforehand whether there are other better options, as well as the chances of whether the measures will actually improve balance or worsen the situation and destroy the U.S.’ core values.

As American diplomat George Kennan wrote in a long telegram he sent from Moscow to the State Department in February 1946, democratic progressive countries including Japan and the U.S. “must have courage and self-confidence to cling to our own methods and conceptions of human society.”

As Kennan warned, the greatest danger that can befall us in coping with this problem — of Soviet communism in the age of Kennan but China today — is that we shall allow ourselves to become like those with whom we are coping.

Reciprocity is a double-edged sword. It is a weapon that should be used with caution, so that it will not destroy our fundamental values, such as maintaining open societies, or adversely affect multilateral frameworks.

Reciprocity is a tool. It is not a strategy nor a value.

Shin Oya is a senior consulting fellow at API.