Now, after three rounds of U.S. tariffs against Chinese imports — and a fourth looming early next year — Beijing, at last, appears to be paying attention. Internally, voices within the Chinese Communist Party are calling for a negotiated settlement, albeit one that allows Chinese President Xi Jinping to save face.
So, when Trump meets with Xi later this week at the Group of 20 gathering in Argentina, what should be the president’s bottom-line condition for ending tariffs? Easy: real measures that roll back China’s innovation-stifling, mercantilist agenda.
Simply reducing the trade deficit between the United States and China is not good enough. The Chinese government would like nothing more than to buy more U.S. soybeans and natural gas in exchange for a pass on its unfair practices, particularly those designed as part of its “Made in China 2025” plan to dominate a wide range of advanced technologies.
China’s agenda not only undermines the United States’ competitiveness abroad, it dulls the U.S. edge on the most important technologies of our era — from semiconductors to artificial intelligence, threatening our national and economic security. So, what would productive negotiations with China entail?
Most importantly, they would abandon the idea that the United States can solely contain China with a rules-oriented trading system refereed by the World Trade Organization. We need to go back to the idea President Ronald Reagan embraced in countering Japan during the 1980s — a “results-oriented” approach to trade. In other words, the U.S. government should identify concrete policy changes it needs China to make, and then roll back U.S. “countermeasures” only when China takes verifiable actions.
The first concrete demand should be a dramatic reduction in cybertheft. Xi once promised President Barack Obama that China would stop stealing U.S. industrial secrets in cyber smash-and-grab jobs, but the National Counterintelligence and Security Center reported recently that China “continues to use cyber espionage to support its strategic development goals.” Trump should insist that this must stop.
Second, China must stop forcing transfer of U.S. technology. Many U.S. companies are compelled to establish joint ventures with Chinese-owned companies, which are designed so that China can gain technological know-how. A senior Chinese official recently admitted as much, stating: “China’s offer to the world has been straightforward: Foreign companies are allowed to access China’s markets, but they need to contribute something in return: their technology.” But that’s precisely wrong. Under the deal China signed with the WTO, foreign companies get access to Chinese markets in exchange for China’s firms enjoying access to other nations’ markets — not their technology. Trump should insist that China immediately abandon forced joint-venture and technology-transfer requirements.
Third, China needs to slash subsidies. As researchers have documented, China has long propped up its own industries with government allowances to a far greater extent than most industrialized nations, including hundreds of billions of dollars from its Made in China 2025 plan. That needs to end.
Finally, China limits access to its markets in a wide array of sectors, including financial services, telecommunications, cloud computing and other information-technology industries, and entertainment. These and other markets need to be opened up expeditiously.
This isn’t an exhaustive list of all the trade issues that need to be resolved, but these are the most important, and must be part of any final negotiated settlement to lift U.S.-imposed tariffs. Moreover, because progress is measurable in all four areas, they should be evaluated every six months to see whether China is living up to its end of the bargain. If it is, then the Trump administration can rescind the tariffs. If not, the White House should make clear it will continue to apply pressure.
Lastly, the Trump administration should make clear that its goal is not to damage China’s economy or to pressure it to abandon its Made in China 2025 ambitions. Rather, the United States’ complaint — and the complaint of our allies — is about tactics. Once China dramatically rolls back its campaign of innovation mercantilism and initiates “normal” trading relations, the world’s two largest economies can prosper together.