Perhaps no part of President Trump’s campaign to overhaul U.S. trade policy enjoys broader support than his indictment of China.
Industry executives and lawmakers agree but fear that Trump’s approach risks an open-ended trade war that will leave American companies with less access to the Chinese market, not more.
“We’re playing Russian roulette with the American economy,” said Myron Brilliant, executive vice president of the U.S. Chamber of Commerce. “The administration has a tool that they think provides leverage over other countries. But I don’t think it has a good strategy for getting a deal done.”
U.S. hopes of exporting more cars to China are among the first casualties. As a conciliatory gesture, Chinese officials in May cut their tariff on imported automobiles to 15 percent from 25 percent. But only days after that reduction took effect on July 1, China hiked its tariff on U.S. cars to 40 percent in retaliation for Trump’s initial levies on Chinese goods.
That means that cars made by BMW in South Carolina or Mercedes-Benz in Alabama and exported to China will face a crippling 40 percent import tax while those shipped from Europe or Japan pay just a 15 percent levy.
“Trump is right that China plays unfair and that unilateral measures are likely needed to get China to play fairer,” said Scott Kennedy, director of the project on Chinese business and economy at the Center for Strategic and International Studies. “But his diagnosis of the underlying dynamics and symptoms is full of key mistakes, which has then resulted in some hideous execution errors.”
Trump’s confrontation with China is complicated by his missteps and global trade rules that have not kept pace with China’s blend of authoritarian capitalism, according to trade specialists.
The president — who cultivates an image as an accomplished dealmaker — has repeatedly suggested that his tariffs provide leverage for negotiations with China to end discriminatory trade measures.
So far, the two sides have made little headway. On Thursday, Hua Chunying, a spokesman for the Chinese Foreign Ministry, accused Trump’s top economic adviser of making “bogus” claims about China’s unwillingness to bargain.
The statement came one day after Larry Kudlow, director of the National Economic Council, said on CNBC that Chinese President Xi Jinping had no “intention of following through” on discussions held this year between the two countries. Kudlow added that China had “not responded at all” to U.S. demands to stop stealing American trade secrets.
Other Trump advisers, including White House aide Peter Navarro, have disparaged the idea of dialogue, saying the Chinese are adept at forestalling genuine reforms by doling out minor concessions to the United States.
Top Republicans are beginning to lose patience with the drama. House Speaker Paul D. Ryan (R-Wis.) recently broke with the president over his tactics, saying: “New tariffs are not the solution. There are other tools we can use.”
One day earlier, Rep. Kevin Brady (R-Tex.), chairman of the House Ways and Means Committee, warned that the United States faces “a long, multiyear trade war between the two largest economies in the world” unless Trump and Xi meet soon to negotiate a solution.
The president remains committed to his protectionist path. U.S. Trade Representative Robert E. Lighthizer, who this year said the United States had made a mistake supporting China’s 2001 entry into the World Trade Organization, has called Beijing’s trade practices “an existential threat” to the U.S. economy.
For nearly a quarter-century, most trade disputes were brought to the WTO for resolution. The global body, fostered by the United States, was established to adjudicate disputes according to agreed norms and procedures rather than through tariff fights.
Although the WTO has largely lived up to its founders’ hopes, it is precisely the sort of international bureaucracy that the president detests. His resort to unilateral tariffs can be explained, at least in part, by his preference for direct engagement with other countries, along with distinctive features of the Chinese economy that have made Beijing’s trade practices difficult to corral.
The United States in March complained to the WTO about China’s discriminatory licensing procedures for intellectual property. But in Geneva this month, Dennis Shea, the U.S. ambassador to the WTO, said the body was incapable of policing China’s behavior.
Many of the Chinese policies that the United States objects to — such as subsidies that promote excess capacity in steel and aluminum production — are not prohibited by WTO rules, Shea acknowledged. Others — such as pressure on foreign companies to surrender trade secrets to their Chinese partners — are implemented through informal, rather than official, channels.
“It’s all done invisibly,” said Jeff Moon, a former assistant U.S. trade representative for China. “Nobody has proof because they see to it there is no proof.”
China’s mercantilist approach to trade is damaging its trading partners, including the United States, and must be changed, Shea said during a periodic WTO review of Beijing’s policies. “This reckoning can no longer be put off,” he said.
China generally complies with global regulators’ edicts when it loses a dispute. But its economic model poses a unique challenge that global regulators are failing to meet, said Mark Wu, a former U.S. trade negotiator who teaches at Harvard Law School.
The Trump administration sees that challenge as growing more acute as an increasingly prosperous China targets the innovative high-technology industries that the United States dominates.
China joined the WTO in 2001 after more than two decades of moving from Maoist autarky toward an export-oriented, market-based economy. In its first years as a member of the global trading club, China developed in unanticipated ways, according to Wu.
The result is an economy that is directed by state and Communist Party structures but also relies on market tools.
Disappointment with Beijing’s course has grown in recent years. Despite promises of additional liberalization, the Chinese government under Xi has increased financial support for exporters and restricted foreign businesses while continuing to hold a majority stake in 99 of the country’s 100 largest publicly traded companies, according to the WTO secretariat.
China’s sheer size also means that what were once irritants are now significant threats. It shipped out $2.2 trillion in goods last year, according to World Bank data, making it the world’s largest exporter.
Massive Chinese subsidies resulted in excessive production of steel, which flooded global markets and made it impossible for many American producers to compete, the administration says.
One target of U.S. ire is the Made-in-China 2025 program, which oversees billions of dollars in subsidies to develop champions in artificial intelligence, robotics, low-emissions vehicles and quantum computing.
Likewise, China’s state-backed cybertheft and pressure on foreign companies to surrender trade secrets in return for access to the Chinese market cost the United States $50 billion a year, said administration officials who spoke on the condition of anonymity to explain government policy.
But the administration has shown little inclination to bargain with Beijing over halting those practices or reducing the $375 billion U.S. trade deficit with China. In May, U.S. negotiators presented sweeping demands for fundamental changes in China’s economic system, effectively insisting that China surrender to avoid a trade war.
Those talks made little progress. Now, even as pain mounts for U.S. farmers and businesses hurt by China’s retaliatory tariffs, U.S. officials remain inflexible.
“China knows what needs to be done, and we urge China to take that route,” Shea said recently.
Chinese officials complain that the Trump administration has presented a long list of grievances without being clear about which concessions were considered essential. The president’s advisers also are divided between hard-liners such as Lighthizer and Navarro and less-hawkish figures such as Treasury Secretary Steven Mnuchin.
Sen. Rob Portman (R-Ohio), a former U.S. trade representative, said this month that the administration’s complaints have left Beijing unsure of U.S. priorities.
“We have not laid out clear, realistic objectives. . . . So the Chinese are confused,” Portman told a Senate Foreign Relations Committee hearing.
Trump abandoned other diplomatic efforts that might have yielded new rules to constrain Chinese behavior. One of his first official acts as president was to withdraw the United States from the Trans-Pacific Partnership, a 12-nation trade deal that would have established new rules governing state-owned enterprises, intellectual property protection and digital trade.
Although China was not a member of the pact, the TPP would have set a standard for future trade relationships and put pressure on Beijing to comply. The administration also has let languish negotiations for a bilateral investment treaty with China, which would have required Beijing to treat American and Chinese companies the same and would have established a neutral dispute settlement process.
“The vast majority of issues were negotiated at the end of the Obama administration,” Moon said. “Tariffs really are the wrong tool.”
Rather than being a means to an end, tariffs may be the end, said Phil Levy, who served as White House trade economist under George W. Bush. The president already has rejected two potential deals with China, one that Commerce Secretary Wilbur Ross negotiated last year to reduce excess steelmaking capacity and Beijing’s recent offer to avert a trade war by buying more U.S. products.
Administration officials insist that the president is simply holding out for a better deal. But Levy is skeptical.
“Is the end goal a deal or protectionism?” he said. “Does the president want a deal, or does he want a fight?”