New Articles

Trump’s Focus on China Trade: Right Target, Wrong Approach

Trump has imposed tariffs on Chinese shipments of export cargo and import cargo in international trade.

Trump’s Focus on China Trade: Right Target, Wrong Approach

In assailing China’s unfair trade practices, President Donald Trump has aimed his fire at a potent political symbol. Both progressive supporters of Bernie Sanders and conservative stalwarts of President Trump believe China deserves blame for job losses and wage stagnation.

Trump is on firm footing in arguing that China’s unfair policies advantage Chinese firms over US competitors. There is public support for breaking some crockery to fix these problems, even if that means enduring some short-term pain for long-term gain. Despite looming tariff threats, equity markets have climbed and the unemployment rate has fallen. In other words, it is understandable why Trump believes there is a solid case for confronting China now on its trade practices.

But there is a smart way and a self-defeating way to address the challenge and, at the moment, Trump is pursuing the latter.

Given the intertwined nature of the US and Chinese economies, there aren’t many ways for the United States to punch China without bruising itself in the process. China is the third-largest (and fastest-growing) market for US exports. Trade and investment with China support roughly 2.6 million American jobs. Chinese retaliatory tariffs will target sectors and electoral districts that have supported Trump. US tariffs on Chinese-produced goods will reduce purchasing power for American shoppers, in addition to putting downward pressure on the value of retirees’ 401(k) accounts. American companies with exposure to China’s market—like GM, Apple, and Boeing—likely will get side-swiped by Trump’s actions and China’s reactions.

Given the stakes, the Trump administration must enter into the fight with clear objectives and a solid strategy. As former Treasury Secretary Larry Summers recently wrote, successful strategy requires signaling to the other side both what you want and the penalties for failing to address your concerns. Successful strategy also involves persuading your friends to apply pressure on your opponent to honor your requests.

In the case of US-China trade tensions, none of these elements are present. American demands have shifted continuously; deals reached one day have been discarded the next. Trump has lobbed threats impulsively, thereby devaluing their currency. And longtime allies have proven unenthusiastic about lending support after finding themselves on the receiving end of unilateral US steel and aluminum tariffs.

Meanwhile, the US-China trade deficit has ballooned. Having reached a record high during President Trump’s first year in office, the bilateral deficit is on track to expand even further in 2018. This inconvenient fact increases the odds that Trump will resort to tariff measures to show that he is addressing a problem he vowed he would fix. The bipartisan blowback to Trump’s softening of penalties on Chinese telecom giant ZTE—at President Xi’s request—further increases the odds that Trump will impose tariffs, in part, to inoculate against criticism of being weak on China.

Given the likelihood of China tariffs on the horizon, the key question now is not whether the United States will get tougher on China, but rather whether it will do so wisely. Imposing unilateral protectionist measures and expecting broad concessions from Beijing in response is not a serious or smart strategy for changing Chinese behavior. Nor is it realistic to expect that unilateral protectionist trade measures will not impact US-China coordination on North Korea. Secretary of State Pompeo understands this dynamic, which is why he reportedly has been urging prudence on timing and sequencing of US trade actions against China.

Not all hope is lost, though. Presidents Trump and Xi both face domestic political imperatives. Trump needs to show progress in rebalancing US-China economic relations by expanding exports and creating new jobs in the United States. Xi needs to transition China’s economy to a more sustainable services- and consumption-based model that pushes China up the value chain. These requirements are not in conflict. With wisdom and creativity, they provide space for trade negotiators to find a solution that supports both sides’ goals.

To reach such an outcome, both leaders will need to accept that nobody gets 100 percent of what they want in a negotiation. The focus should be on the structural issues contributing to the trade imbalance, not on Chinese pledges of future purchases of American goods, which may mask problems temporarily but will not solve them.

The Trump administration will show it is serious about addressing China’s unfair trade practices when it stops giving China an out by suggesting that big ticket purchases will make problems go away, and instead concentrates on fixing fundamental structural issues—market access, technology transfer, joint venture requirements, and intellectual property protections—just like Xi did through his laser-like focus on saving ZTE. There is a deal to be made with Beijing, but it will require creativity and compromise. It also will require prioritizing objectives and enhanced coordination with like-minded partners. The more China hears from other trading partners with the same concerns that Washington is raising, the sooner it will take seriously the need to adjust its practices.

To date, the Trump administration’s China trade strategy has not caused Beijing to moderate its approach or take any actions it did not already plan to take as a consequence of pressure from Washington. Time will tell whether the Trump administration is able to adapt its approach to achieve better results.

Ryan Hass is a foreign policy fellow at The Brookings Institution. This article originally appeared here.

Trump's trade policies are not producing more shipments of export cargo and import cargo in international trade.

Time to Rethink US Trade Strategy in Asia

The Trump administration is moving toward scoring an “own goal” on the American economy with its current trade strategy in Asia. Just as when one scores a goal for an opponent in soccer, an “own goal” in international trade occurs when a country takes actions that harm itself and advantage its competitors.

The focus of the Trump administration’s trade agenda in Asia has been on negotiating bilateral free trade agreements, securing greater balance in trade with China, and renegotiating the US-Republic of Korea (KORUS) free trade agreement. So far, the record is negative and trending worse.

Bilateral Free Trade Agreements

Trump entered office promising to deliver bilateral trade agreements that would improve upon the twelve-nation Trans-Pacific Partnership (TPP). He has been unable to deliver on such pledges for at least five reasons. First, Trump’s withdrawal from the TPP and his stated desire to pull out of the KORUS agreement and the North American Free Trade Agreement (NAFTA) highlighted the fickleness of his fidelity to existing agreements, even with America’s closest allies.

Second, Trump adopted a maximalist, uncompromising, take-it-or-leave-it-approach to renegotiating NAFTA and KORUS, which is having a chilling effect on any country considering entering into trade negotiations with Washington. Third, Trump failed to appreciate the integrated nature of value chains in Asia, which have diminished the significance of bilateral free trade agreements. Fourth, Trump has suggested he wants to use trade agreements to eliminate bilateral trade deficits, as opposed to focusing on market access. This misguided approach ignores that a trade balance equals the difference between savings and investment. As a consequence, potential negotiating partners are deterred, knowing they will have a target on their back for any FTA that does not deliver balanced trade. And fifth, Trump underestimated that our Asian trading partners have other options (i.e., with China, the remaining eleven members of TPP, and with Europe).

The net effect of Trump’s “America first” trade policy is that many of America’s closest trading partners in Asia are accelerating efforts to advance regional economic integration while the United States stands on the sidelines.

On China, the record to date has been troubling. In announcing tariffs on imported solar cells and modules last month, the Trump administration protected a small number of US-based solar manufacturers, one of which is Chinese-owned, at the expense of destroying roughly 23,000 American solar workers’ jobs. The move also appears to have triggered Chinese retaliation against American sorghum producers, a geographically concentrated group in the Midwest that exports 79 percent of its product to the Chinese market. Protecting a Chinese-owned company at the expense of American workers’ jobs is the epitome of an own goal.

Trump’s next major China trade-related decision is whether to use national security as a basis to protect America’s steel and aluminum industry. The national security rationale for such a finding are so thin that reportedly even Secretary of Defense Mattis has reservations about this course of action. So, too, does every living former chair of the Council of Economic Advisors, Republicans and Democrats alike. They argue in a joint letter to President Trump that previous attempts to use protection to revitalize the steel industry have failed, and that by imposing steel tariffs now, Trump would harm the US economy by raising input costs for manufacturers, reducing employment in manufacturing, and increasing prices for consumers.

On top of that, no matter how carefully the protections are crafted, tariffs would do disproportionate harm to our most important diplomatic partners from whom we import the majority of our steel—such as Canada, Mexico, Germany, the Republic of Korea, and Vietnam—and not China, from whom we import very little steel.

The costs of alienating our partners will become clear when the White House turns around and asks them for their support (or non-opposition) to US use of unilateral trade tools to press China to remove discriminatory policies. The president appears set on using Section 301 of the Trade Act of 1974 to unilaterally seek remedies for unfair Chinese trade practices. The risks of such a gambit are multifaceted. First, such a move will almost certainly spark Chinese retaliation, which in turn will risk setting off a tit-for-tat trade war. Second, such a unilateral action will blow a hole through the existing international trading system that other countries will likely follow. This, in turn, risks unraveling the current international trade dispute resolution mechanism. And third, without the backing of our European and Asian partners, there is a higher probability they will backfill US companies in China during a trade war. Just think of Airbus planes instead of Boeing planes, and Australian beef in place of American beef exports. This, too, would be an own goal.


Then there is Korea. Trump has launched an assault on KORUS—the economic underpinning of the Washington-Seoul relationship—at a time when the alliance is under unprecedented strain due to North Korea’s nuclear and missile programs. Trump’s attempts to compel Seoul to capitulate to his trade demands have drained goodwill without deriving a single benefit for any US exporter.

While each of these efforts is misguided, doing nothing is not a viable option. The Asia-Pacific region is moving forward with its own economic integration, with or without America’s involvement. The United States should seek to harness regional integration initiatives to establish high standards for trade and investment liberalization that leverage America’s comparative advantages. The goals would be at least twofold: first, to expand export opportunities for America’s most dynamic sectors; and second, to show the region that the United States is ready to strike mutually beneficial deals to bring about alternative economic integration options to ever-deepening dependence on China.

Ultimately, the objective of US efforts in Asia should be to foster an open, integrated economic structure where US firms can compete fairly against companies from throughout the region. By setting an affirmative vision and then building regional support for it, the United States would improve its ability to create a level playing field for American businesses, manufacturers, farmers, fishermen, and ranchers to compete.

President Trump already has shown flickers of support for such a strategy. He expressed openness at Davos to future US involvement in the Trans-Pacific Partnership. Now is the time for President Trump’s advisors and members of Congress to nurture and encourage those instincts, as 25 senators recently did in a letter to the president. Delivering a region-wide trade deal that sets high standards and supports American workers would be an outcome worthy of the ambition of a president determined to chart a new course.

Ryan Hass is a foreign policy fellow at Brookings’ John L. Thornton China Center. This article originally appeared here.