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The reviews of the Trump administration’s recent public demands regarding Chinese trade and investment policies have been wildly mixed but generally negative, even scathing. On the optics, the administration set itself up for ridicule by its last-minute assembling of a Keystone Cops delegation of clearly disparate, rival views of how to handle China. Still, Michael Pillsbury of the Hudson Institute proclaimed that “Trump wins the first round in US-China trade war.” On the other hand, Phil Levy from the Chicago Council on Foreign Affairs argued: “Trump team gives a master class in how not to deal with China.” Although Pillsbury’s headline is more clearly an overstatement, both judgments glide over a more complicated story. Despite predictions (including from government-dictated sources in China) that China would refuse to go forward after Trump’s maximalist demands, President Xi Jinping has hastened to send his top economic adviser, Liu He, back to Washington this week.
Before diving into the details of the Beijing meeting, let’s review some background for context. As I have pointed out in a forthcoming article, there is widespread agreement among public policy analysts and academics (even those who, like myself, very much disagree with many aspects of Trump’s trade policy) that on China, the United States has a strong case and compelling incentives to confront entrenched protectionist state capitalism. Commentators as diverse as Robert Samuelson and Fareed Zakaria, as well as trade economists Doug Irwin and Greg Mankiw, have agreed as Irwin stated that one “cannot defend the way China has moved in the past few years, violating intellectual property and forced technology transfer.” Further, key business organizations such as the Business Roundtable and the US-China Business Council supported the US putting forward specific issues accompanied by “meaningful guidelines with timelines of implementation.”
Still, while there is substantial agreement that the US must act on Beijing’s system of subsidy/protection, there is little agreement on the most effective set of responses. This brings us to the wheat and the chaff — and the document the US delegation presented to Chinese negotiators 10 days ago.
The foolish and the absurd
As critics have scornfully pointed out, the US “framework” for negotiations was a mishmash that seemed to reflect the substantive clashes within the Trump administration itself, leaving the document vulnerable to the charge that it was “economically wrong-headed, diplomatically toxic, and legally destructive.” This is an accurate assessment for key elements of the framework. Items for the “chaff” include, as examples:
What is positive — and necessary?
Whatever the flaws of delivery, however, critics have failed to acknowledge that the Trump administration is right on target in attacking key elements of the maze of laws and regulations that underpin anticompetitive Chinese state capitalism. Among the valid issues raised in the “framework” are the following:
Some commentators have lumped the economically foolish demands — namely, trade balance — with the valid state capitalism indictments listed above. The respected trade economist Eswar Prasad of Cornell University criticized the expectation of Chinese “capitulation,” and Financial Times columnist Martin Wolf, whom I also greatly respect, labeled the framework “arrogant” and “humiliating” for China.
Fair enough, but I would argue that to this point, Beijing has not foreclosed future negotiations. And while I have deep reservations about the Trump team’s ability to give priority to the real issues of mercantilist protection, they have the opportunity in coming weeks to exert strategic pressure on Beijing, through threatened unilateral actions and the auspices of the WTO where the rules apply. My worry is not that the administration will overreach, but that at some point, our mercurial president will take a few crumbs in increased exports to China and declare a (hollow) victory.
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