A Faster Boat to China, Please
If the impending U.S.-China trade deal meets only the lowest expectations, both countries will be better off. Right now it certainly looks likely that fundamental structural issues are only kicked further down the road. The Trump China Trade Strategy—if “strategy” is the right word— had been to hike tariffs on Chinese goods so much that China would be compelled to cut hard bargains on both its resistance to imports and foreign investment, and to agree to enforcement mechanisms that override Chinese domestic law. That just hasn't happened.
Instead, the focus is shifting from the big-picture structural issues to specific, narrow, enforceable agreements on intellectual property, soybean purchases, aerospace deals, and maybe technology transfers. Between Chinese purchases from Boeing (if that’s still on the table after the 737 MAX troubles) and likely concessions to Hollywood and U.S. pharmaceutical companies, this is shaping up as a U.S.-China trade yard sale all around. Anchoring a deal, some claim, will be a currency accord—the last refuge of a scoundrel (as one wag has recently told the Financial Times): If you can’t make a deal of real substance, call for a “currency accord”.
Those structural issues on the table—genuine openness to foreign investment, reasonable intellectual property protections, and no forced technology transfer, all without depending solely on Chinese domestic law (which would be folly)—appear little more than a smokescreen for cutting quota deals for special interests. If that sounds more like state control than the free market at work, that’s because it is. There seems little prospect of any truly enforceable accords on fundamental U.S.-China issues, except for Chinese promises to modify internal law and be nicer to U.S. interests in the future. Indeed the U.S. Ambassador to Beijing, Terry Branstad, has suggested a deal is not imminent at all—although this might just be a ploy to get more for Iowa agriculture, Branstad’s home state. Between murky pseudo-deals and general nebulousness, what can be taken from all this?
Whatever happens from here on, the good news is that even the shadiest deal is likely to erase both the Trump tariffs aimed at China and the Chinese retaliatory measures that are hurting American soybean farmers, among others. That would simply restore the status quo ante and calm the turbulence plaguing the financial markets. Even if there has to be a bit more jockeying for position before a deal is announced, that would be a respectable outcome.
After all, running a trade war, even when the U.S. has plenty of legitimate grievances with Chinese practices, undermines our ability to grapple with more profound issues like China’s North Korean satellite, China’s contemptible treatment of the Uighurs, and its chilling “social awareness policy” that makes every Chinese citizen a chattel of the Chinese communist party. So let the politicians bluster for now and, at the appropriate time, claim victory for their respective special interests if that be the price for a surreptitious climb-down from a pointless escalation of economic tensions. Both parties save face and are better off. It’s certainly better than U.S. customers paying the price of aimless economic friction and geopolitical goals being neglected over a hill of (soy) beans.
“Governments”, as these authors have written for a colloquium of the International Affairs Forum before, “do not make economic decisions—they make political decisions with economic consequences. No government is immune from the magic of the marketplace [and] China can’t achieve the global status it aspires to without offering greater certainty to foreign investors.” Cleaning up its economic act—at the core of which would be a more open foreign investment policy, a stop to forced technology transfers, and an end to special privileges for state-run or party-championed companies—is also in China’s self-interest, a point the Trump trade team would be wise to point out more forcefully, rather than using pressure points that hurt U.S. producers & consumers at least as much as the Chinese.
