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A public policy blog from AEI
Yesterday morning, President Trump put forth a candidate for his strangest Tweet yet:
President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!
— Donald J. Trump (@realDonaldTrump) May 13, 2018
Worrying about job losses in China is very odd, but it’s not actually important. What’s important is whether a giant Chinese state-owned enterprise gets away with breaking American law. If ZTE does, President Trump will be guilty of what he correctly accused his predecessors of — letting China harm the United States.
In March of last year, ZTE agreed to pay a large fine for violating American sanctions against Iran, sanctions which have become much more important since the president’s cancellation of the Iran deal. Less than a month ago, ZTE was found by the Department of Commerce to have lied to the US government and American firms were ordered to halt business with ZTE, which fits the new Iran policy.
Yet President Trump has now instructed Commerce to rescue ZTE, save Chinese jobs, and undermine the credibility of Iran sanctions. The only explanation is that he has been promised something sizable in return. Some hours after the tweet above, the president sent one which suggested Chinese trade concessions.
One possible concession is the PRC resumes buying American farm exports such as soybeans. This would be a truly awful deal for the US. If the accusations last year and last month are accurate, ZTE violated Iran sanctions, then further attempted to deceive the US government. In this case, Communist Party General Secretary Xi would be using barriers against American agriculture to blackmail the Trump administration into accepting ZTE’s behavior.
The president said as recently as last month that trade wars are “easy to win.” But here he’d be acting as if China has so huge a trade advantage over the US that we’re too afraid to even enforce our own laws. It’s hard to imagine a more fundamental surrender.
Let’s give President Trump credit and assume he has demanded more. His consistent focus has been on reducing our trade deficit with the PRC. This would be far better than submitting to blackmail but still a poor choice for the US. The reason is that the worst part of the trade deficit stems precisely from China breaking American law.
The Trump administration already knows this — it launched an investigation (known as Section 301) into Chinese attempts to illegally acquire US technology. Much of that investigation was aimed at the PRC’s international commitments but the rest concerned outright theft of American trade secrets and other intellectual property.
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And the trade effects of the theft are clear: When the PRC steals a competitive advantage of American companies and workers, some US exports are no longer superior to China-made goods and services. So Chinese demand for our exports falls.
Moreover, by using stolen American intellectual property, Chinese firms can not only produce better goods and services there but also send them here, driving our firms out of business and our workers out of jobs. When the PRC breaks US law, one result is often lost jobs here. That’s why it’s so strange for ZTE to break the law, and President Trump to care about lost jobs in China.
Letting ZTE slide in exchange for trade concessions therefore makes no sense and will not work. It makes no sense because we’d allow China to break American law when the most harmful part of the trade deficit is due to China breaking American law. It will not work because, if ZTE can get away with lying, the Chinese government itself will sooner or later lie about agriculture trade and the deficit.
The final results are predictable: (i) knowing the US is a paper tiger, ZTE will be emboldened to again evade sanctions on Iran; (ii) our trade deficit with China will not decline because the PRC will lie about its commitments and continue to break American law; and (iii) Democrats will hammer Republicans on both points through election day 2020. Someone close to President Trump is giving him bad advice.
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