The U.S.-China relationship is one issue on which President Trump’s instincts are at least partly right — for China, let’s be honest, does not always play fair in international economic relations. It has limited respect for intellectual property; it subsidizes strategic industries with bargain loans and export credits; it uses government power over procurement to favor domestic firms. But diagnosing China’s sins is not the same as stopping them. The question is whether Trump, at this week’s summit with Chinese President Xi Jinping and in the future, can hit upon a strategy that actually helps U.S. workers.
There are, broadly, two ways to influence China. The first is direct bilateral pressure: The United States announces that certain forms of conduct are not acceptable. Bill Clinton famously tried this at the start of his presidency, when he linked China’s human rights to trade access; he got nowhere. During last year’s campaign, Trump promised similar toughness: He would declare China to be a currency manipulator “on day one.” Sensibly, Trump has backed away from that bravado. Most of the time, on most issues, China is too big to push around.
Method two stands a better chance. It is to welcome China to the top table of the international system, and then demand that China play by the rules. After his failed bilateral experiment, this is what Clinton came around to: He brought China into the World Trade Organization. Since then, China’s behavior has not been perfect, but Beijing has abided by its WTO commitments more than reasonable commentators expected. Between 2001 and 2016, China was the defendant in 39 cases brought to the WTO dispute-settlement tribunal, and generally complied with adverse rulings. Meanwhile China initiated 15 of its own cases, winning several.
If rules have generally worked better than bilateral pressure, that will be even truer in the future. As China’s economic weight catches up with the United States’, its leadership will be even less likely to respond to bullying. On the other hand, as China proudly assumes the mantle of global leadership, it will care more about its image in the world.
The most obvious example of this solicitude came in January, when Xi delivered a widely noted speech in Davos, painting China as the defender of the international economic order. But Xi’s speech is part of a pattern. For the past three years or so, Chinese leaders have claimed interest in international law and China’s contribution to it. In February, Xi followed up on his Davos speech, declaring that China should “guide international society” toward “a more just and rational new world order.” As the Economist reported recently, China operates a $10 billion-a-year soft-power offensive, designed to win foreigners’ affection. That is many times what the United States spends annually on public diplomacy, according to David Shambaugh of George Washington University.
Given China’s concern to be seen as a respectable superpower, the best way to constrain it is to promote international rules. Trump’s first instinct has been the opposite: He has denigrated the WTO, asserting that bilateral pressure is better. But there are signs that Trump is mellowing. He may be open to a better way.
If Trump is to edge toward a rules-based strategy, the rules need to be credible. This is why he’s right to back away from his campaign promise to name China a currency manipulator. China has indeed manipulated its currency in the past, and may do so in the future: by holding the renminbi down, the government has boosted exports at the expense of foreign producers. But precisely because the United States has a stake in the principle that manipulation is damaging, it should not undermine that norm by invoking it disingenuously. Recently, China has engaged in the opposite of manipulation, intervening to prop up its currency rather than forcing it down.
The same goes for the Trump team’s strange focus on bilateral trade balances. China’s trade surplus with the United States is an extremely poor measure of misconduct: It reflects factors ranging from the dollar’s reserve-currency status to China’s tendency to import parts from third countries, assemble them, and sell the finished products to America, so that a Korean semiconductor might show up as a Chinese export to the United States. Unless the Trump team discards its bilateral metric, it will discredit its China policy by sounding clueless.
But that still leaves room for getting tough. Appealing to China’s professed belief in a fair international system, Trump could propose a cut to China’s auto tariff, which, at 25 percent, is fully 10 times higher than the auto tariff imposed by the United States. He could warn China against aggressive use of subsidies and procurement muscle as it builds its next generation of industries in tech and aircraft. And he should lead a global push to adapt international rules so that they can cope with the challenge of China’s peculiar state capitalism. This week’s China summit would be a good time to pivot to a policy that is true to Trump’s instincts but more refined in its strategic thrust.