Removing Trade War Threat with China is Not Enough
The Trump administration and China appear to be in the final stages of negotiations on what could be a major trade agreement between the two countries. High-level talks move back to Washington on Wednesday, with a tentative deal foreseeable soon thereafter, to be followed by a wrap-up visit to the United States by President Xi Jinping. It’s not too soon to start defining the minimum conditions of an acceptable deal from the U.S. point of view.
“Structural” is the key concept here, as President Donald Trump has acknowledged. We had our doubts about Trump’s imposition of tariffs on hundreds of billions of dollars’ worth of Chinese imports, in part because it provoked China’s own tariffs on U.S. goods and in part because the president’s invocation of “national security” as a legal rationale threatened to undermine the reciprocity-based trading system more broadly. Aggressive as they were, his tactics could be redeemed if they force China to change not only such transitory factors as how many soybeans it buys from the United States but also more deeply embedded trade-distorting practices such as systematic subsidies for state-owned exporters and forced technology transfers imposed on U.S. and other foreign investors.
On this point, there is cause for concern in recent indications that the administration has all but abandoned the goal of greater digital openness in China’s economy. The New York Times reports that the administration is prepared to accept China’s tight regulations that prevent foreign firms from transferring data they gather on Chinese customers for storage outside the country. Instead, it would continue to be stored on servers inside China. This would disadvantage American and other non-Chinese firms in the global competition to create advanced technologies and business methods, including, potentially, those related to artificial intelligence. Perhaps more disturbing, it could help China’s communist rulers maintain their tight grip on political and artistic dissent, contrary to basic individual rights but consistent with Chinese leaders’ claim that they need control over the data for “national security” reasons.
Any trade negotiation requires give and take. So far, Trump seems to be gaining some ground in areas such as agricultural and energy sales and intellectual property protection; the Chinese seem ready to concede greater latitude for U.S. companies to operate without Chinese joint venture partners. They expect to be rewarded with an end to some or all of the tariffs Trump imposed.
Yet China may not be bargaining from a position of as much strength, economically, as it would have had a few years ago. Growth is slowing, and debt is rising -- creating an opportunity for the Trump administration to achieve goals that have eluded previous administrations. Unfortunately, the president’s fixation on short-term trade deficits, and his inclination to retain tariffs rather than cash them in for deeper Chinese concessions, may lead to an outcome that leaves China unchanged, except cosmetically.
On Sunday, Trump threatened to further raise tariffs Friday if no deal is reached. Undoubtedly, the American people, and the world, will cheer any deal that removes the threat of a trade war, if only because it removes a source of uncertainty hanging over a generally benign economic situation. But that should not be the standard of success.
-- THE WASHINGTON POST