Contributor Post Created with Sketch. The $200 Billion Question: What Exactly Is the US Trying to Accomplish with Its China Trade Talks?

 
US Trade Representative and member of US trade delegation Robert Lighthizer leaves a hotel in Beijing, China, May 4, 2018.

This isn’t a shock: China’s Foreign Ministry now says Beijing hasn’t offered to cut its nearly $400 billion trade surplus with the US by $200 billion. Well, yeah. This rumor — perhaps just 3-D psychological chess from Team Trump — always appeared dodgy.

Because math. And because reality. Can a US economy with capacity utilization at a three-year high and unemployment at a 17-year low boost production by that much? Look at it this way: Aircraft ($16 billion) and soybeans ($12 billion) were the two biggest US exports to China last year. As Reuters points out, China would have to buy 667 more Boeing commercial jets a year to meet the $200 billion goal. (Boeing, by the way, made 763 such planes last year and has an order backlog for 5,654 jets.)

Or this: Even if China bought all US agricultural exports, that only gets you to $140 billion. You only hit that $200 billion number “if the US sold China all, or nearly all, of its yearly oil production.” You see my point. Focusing on trade deficits is a distraction, more about macroeconomic factors and how you analyze supply chains. (Hal Varian, Google’s chief economist, explains in the Financial Times that the overall US trade deficit could technically be halved if statisticians were better able to capture the value of the American-developed software embedded in smartphones worldwide.)

Rather, the core issue of US trade talks with Beijing: China’s decision to get rich through protectionist state capitalism. That’s why Trump’s recent tweet about saving Chinese telecom giant ZTE from US penalties is problematic. Chinese companies should pay a price for breaking our laws, whether it’s evading US sanction or swiping US intellectual property. As AEI’s Derek Scissors wrote earlier this week, “If you want to ‘beat China,’ you don’t rescue ZTE, you target many more Chinese state firms. . . . Hurting giant state enterprises hurts the Communist Party.”

My AEI colleague Claude Barfield offers an alternate path: To get ZTE to the negotiating agenda, China should remove antitrust objections to Qualcomm’s $44 billion takeover of NXP Semiconductors, as the US company moves to become a leading global supplier of automotive microchips. (US negotiators should also pursue a WTO investigation into Beijing’s announced $40 billion subsidy program for the Chinese semiconductor industry.)

More broadly, the US should demand that China a) open more sectors are open to foreign investment, b) cease the forced transfer of technology, c) strengthen domestic IP laws and regulations, d) curtail commercial cyberespionage under threat that Chinese firms benefiting from such IP theft get banned from the US market, and e) halt its subsidies to advanced manufacturing industries included in the Made in China 2025 plan.

There are 4 comments.

  1. Al Kennedy Member

    Over at PowerLine Paul Miringoff has a post quoting Treasury Secretary Mnuchin on the recent China trade “deal” and the statements of the U.S. and China. Paul concludes that China has agreed to nothing and agrees with Rich Lowry that “The vague-to-the-point-of-useless deal and complete absence of American action could have been pulled straight from the Obama or Bush administrations.” The lack of details on what was agreed to makes it impossible to argue specifics of what is good or bad in the deal. However based on what has been said publicly, it would appear to conflict with President Trump’s campaign promises on punishing China for its theft of U. S. technology and other trade improprieties. I think China got the best of Mnuchin, Secretary Ross and Robert Leighthizer on this deal. The administration’s emphasis on trade deficits by individual country is leading to bad trade policy.

    • #1
    • May 22, 2018, at 1:33 AM PST
    • 2 likes
  2. I Walton Member

    “More broadly, the US should demand that China a) open more sectors are open to foreign investment, b) cease the forced transfer of technology, c) strengthen domestic IP laws and regulations, d) curtail commercial cyberespionage under threat that Chinese firms benefiting from such IP theft get banned from the US market, and e) halt its subsidies to advanced manufacturing industries included in the Made in China 2025 plan.”

    That sounds like a good medium term trade agenda, but China won’t agree to anything unless we impose costs. The trick is to focus on costs that don’t harm us more than them. The tariffs and sectors the Administration picked harm us more than them. So backing off by pretending we got something is better than to continue to impose tariffs on key inputs for our economy. In addition to specific measures to target technology theft and transfers, and stronger IP, and espionage which may not have trade related levers, an across the board uniform tariff would help us without harming any particular US sector. It would be the equivalent of a devaluation which, given the role of the dollar, is impossible for us to do. Then we can negotiate with the entire world country by country, beginning with countries with whom we have bilateral agreements, on how they get inside our tariff. That would be a multi administration agenda and in the mean time reduces our current account deficit which is the deficit we should worry about not bilateral trade imbalances.

    • #2
    • May 22, 2018, at 3:34 AM PST
    • 1 like
  3. Al Kennedy Member

    Here is an interesting article from the NY Times about the trade negotiations.

    • #3
    • May 22, 2018, at 6:34 AM PST
    • 1 like
  4. Ontheleftcoast Inactive

    No, this is the question and it’s a lot more than $200 billion. Emphasis added.

    Rick Fisher, a China military expert, testified that China’s military, economic, and political activities in Asia and globally pose “grave challenges” for American security. He warned that the United States has “about a decade” to take action to counter the threat.

    “The battle to hold off China starts in the Taiwan Strait,” Fisher said.

    China plans to use the Pacific island of Taiwan, some 100 miles from the Chinese coast as a future base for nuclear missiles, aircraft, and naval forces that will be used to coerce regional democracies into bowing to Beijing’s will and ending alliances with the United States….

    Past U.S. efforts to assuage China through trade, military exchanges, and other conciliatory gestures were unsuccessful in altering China’s threatening trajectory, Nunes said.

    “These previous attempts to appease China failed to improve our bilateral relations,” he said. “In fact, China has only become emboldened and may now be the preeminent threat to American security, our economy, and our values.”

    This report, part of the testimony before the subcommittee, is a good, and deeply alarming summary. An excerpt:

    China’s unilateral expansion into and through the international waters within the First Island Chain—or what Beijing now calls China’s “Blue Territories”—over the past six years has dramatically altered the strategic balance of power in the Indo-Asia Pacific region.In addition to building of a modern, blue-water Navy, the PRC has taken a wide range of destabilizing actions that pose an increasingly threat to global security.These actions include the PRC’s construction of naval air stations atop buried coral reefs in the South China Sea… their declaration of an Air Defense Identification Zone (ADIZ) in the East China Sea near Japan, their claims of sovereignty over the Senkaku Islands, and their flat out repudiation of the authority of the Permanent Court of Arbitration,the world’s oldest standing international law arbitral body.The threatening actions also include China’s unprecedented and increasing naval operations in the Western Pacific, South Pacific, Indian Ocean, the Mediterranean and Baltic Seas, the Arctic and Antarctic and finally into the Atlantic Ocean: these actions are clear empirical indicators of China’s future malign intentions and actions.

    AND:

    …the quality of PRC warships already presents a credible threat across the Asia-Pacific today. Consequently, we should be gravely concerned about America’s ability to deter or defeat the PRC’s naval spear. We do not have much time left—certainly not until the year 2030 when the PRC’s navy will be double the size of the U.S. Navy

    • #4
    • May 22, 2018, at 7:25 AM PST
    • 2 likes