A senior Trump administration delegation is heading to China next week to discuss a possible deal to avert a trade war, but Beijing still refuses to address the real problems in the U.S.-China economic relationship. The Chinese plan is to offer the Americans flimsy, short-term concessions that will tempt President Trump to declare victory before the fight begins. He must not fall into the trap.
The trip by Treasury Secretary Steven Mnuchin, National Economic Council Director Larry Kudlow, U.S. Trade Representative Robert E. Lighthizer and White House Office of Trade and Manufacturing Policy Director Peter Navarro may be the last chance to avert U.S. imposition of up to $150 billion of tariffs Trump has either announced or threatened. The Chinese government is scrambling to head them off before they go into effect.
While threatening retaliation, Beijing is offering a few concessions in the hope that Trump will jump at them, claim a political win and back down. But the issues Beijing has reportedly agreed to discuss — tariffs, trade deficits and limited market access — are just small pieces of the larger puzzle. And releasing pressure on China without addressing the systemic problems caused by Beijing’s worldwide economic aggression would be a penny-wise, pound- foolish approach.
Cleverly, Beijing is threatening retaliation against the U.S. agricultural industry and sectors targeting Republican voters. As Wall Street worries about volatility, China may try to play pro-finance officials such as Mnuchin and Kudlow against hard-liners such as Navarro by offering investment concessions. They can appeal to Trump by promising market access for American-made automobiles and purchasing more U.S. goods to reduce the trade deficit.
None of that addresses the larger issues, including China’s predatory investment, as well as its flouting of international trade commitments, forced technology transfer, intellectual property theft and attempts to unfairly dominate future technology sectors through state-supported “ national champion ” corporations.
The good news is that the Trump administration is working on all of those issues, and there is broad administration consensus that these systemic issues must be addressed. A senior administration official said Trump remains committed to the larger project.
“If anything, the president is always interested in getting good outcomes, but he’s not going to settle for something that’s not meaningful and doesn’t include accountability,” the official said. “The president has shown an ability to adhere to his vision.”
Next week’s trip is part of an ongoing dialogue with China, at Beijing’s request, to follow up on the recent visit to Washington by President Xi Jinping’s personal envoy, Liu He, the official said.
Some argue Trump can make a short-term deal with China on small issues while continuing the larger project of pressuring China to make structural changes. But Trump’s tariff threats can only be leveled once. Wasting that leverage for minor concessions would be a huge missed opportunity.
Outside experts wonder whether the Trump administration has the stomach to see the larger project through as the stakes — as well as the costs — go up. Diplomatic engagement is positive, but the United States must prepare for what happens if China won’t budge on systemic reforms.
“China is not going to give us what we really want, which is for them to be a good economic partner,” said Derek M. Scissors, a senior fellow at the American Enterprise Institute. “China would have to fundamentally abandon their industrial policy. They are not going to do that.”
It is likely Beijing will not agree to anything serious until the United States inflicts real pain on the Chinese economy. That may necessarily mean some pain for the U.S. economy, as well. If it doesn’t work, the United States will have no choice but to restructure the U.S.-China economic relationship without Beijing’s cooperation or consent. That means cutting off Chinese investment in entire sections of the U.S. economy, including high-tech industries and those sensitive to national security.
That also means developing a full and public national economic strategy for the United States. A group of bipartisan senators led by Todd C. Young (R-Ind.) has introduced legislation directing the administration to do just that.
“Continued American prosperity, economic competitiveness, and security require that the U.S. respond to predatory economic practices by China and others in a smart, well-coordinated, and strategic manner,” Young said.
The Trump administration must also do better rallying allies to the cause. Sen. Dan Sullivan (R-Alaska) said that enforcing principles such as reciprocity — equal though not identical terms for both sides — is key to building consensus among open societies to protect the international trade system from Chinese abuse.
“Reciprocity is critical,” he said. “It unites allies, it plays to the fundamental issues of fairness and it puts the Chinese on their heels.”
China has a well-defined economic strategy, one that Commerce Secretary Wilbur Ross has called “frightening.” The United States must devise a plan to lead the worldwide effort to counter Chinese economic aggression within a market-based approach. Until that happens, Trump should tell Beijing, “No deal.”