The Washington PostDemocracy Dies in Darkness

Opinion Four reasons Chinese officials aren’t buying Trump’s trade threats

A Chinese-made robot  lifts goods during the World Robot Conference in Beijing in August 2017.
A Chinese-made robot lifts goods during the World Robot Conference in Beijing in August 2017. (Andy Wong/Associated Press)

Lawrence H. Summers is a professor at and past president of Harvard University. He was treasury secretary from 1999 to 2001 and an economic adviser to President Barack Obama from 2009 through 2010.

As the possibility of a trade war looms between the United States and China, economic logic and truth appear to be an early casualty. There are certain points on which there should be no disagreement.

First, globalization and trade have caused significant disruption to the U.S. economy, but this has had little to do with the trade agreements of the past generation. It is now clear that increased imports, especially from China, have inflicted substantial burdens on manufacturing workers, particularly in the Midwest. Too much conventional analysis goes wrong in attributing this to trade agreements and in failing to recognize offsetting job gains from exports.

The reality is that the U.S. economy was largely open by the 1980s and that every major trade agreement has reduced other nations’ trade barriers by far more than it altered American trade barriers. This is most true of China’s 2001 accession to the World Trade Organization, in which the United States committed only to keeping its markets open on the most-favorable-nation terms that had already been ratified each year for more than a decade, while winning major changes in Chinese economic policy.

The real cause of economic disruption was not trade agreements but the rise of emerging markets as major participants in the global economy. This is not something the United States could stop or, given its export interests and broader interests in global cooperation, plausibly aspire to contain.

Second, much of President Trump’s rhetoric notwithstanding, it is wrong to say that nothing has been achieved through negotiation with China. Only a few years ago, China’s current-accounts surplus was the largest relative to gross domestic product among significant countries, it held down its currency to maintain demand for its exports, and most of the software used on the personal computers and electronics on sale in its major cities were pirated.

President Trump says he didn't start a trade war with China. But Post opinion writers say there will still be American casualties. (Video: The Washington Post)

China’s global surpluses are now far below the U.S. negotiating targets of a few years ago, China has spent about $1 trillion propping up its currency, and intellectual-property protections are far better enforced. Of course major issues remain, but the view that multilateral pressure without bluster is ineffective is belied by experience.

Third, China’s extraction of ­intellectual-property through joint-venture requirements is largely a problem for companies outsourcing production from the United States, and not for American workers. Corporations headquartered in the United States often complain bitterly that to enter the Chinese market they must enter into joint ventures with Chinese counterparts that demand transfer of intellectual property, then move to operate on their own.

These complaints are often accurate. Notice, however, that they typically involve cases where the company in question produces for China in China; and thus has little impact on U.S. employment. In many cases, a substantial number of the company’s shareholders are foreign, and the company pays taxes to many governments. It is more than a little ironic that an administration that condemns outsourcing should make standing up for those who move production to China so central a priority.

Fourth, bilateral trade bluster is not an effective strategy for the United States. While most countries feel somewhat threatened by Chinese trade and business practices, it has been the unfortunate accomplishment of U.S. trade policy in recent months to cause most of the world to rally to China’s side because of our disregard for the WTO and the global system.

Not only does having many others on its side make it easier for China to resist the United States, but also it undercuts the effectiveness of our sanctions. China can still export to other markets, and U.S. producers who use Chinese inputs lose competitiveness when only they are forced to pay tariffs. History is clear that moments of high trade truculence, such as that pursued against Japan in the early 1990s, accomplished little while imposing substantial costs.

Fifth, threats have to be credible to be effective. In recent weeks, every time the United States has pushed its strategy, markets have had mini-collapses, while every time it has appeared to pull back markets have rallied. How in such a world can it seem credible that the United States will actually follow through on its threats? And without credibility, why should one expect strong responses from China? I returned from a recent meeting with senior Chinese officials with the clear sense that they are more bemused than alarmed by what they see as a boomeranging U.S. approach.

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