It’s Still Unclear What the US-China Trade War Is Really All About

 

“Jaw, jaw is better than war, war” is one of those well known Winston Churchill quotes that Churchill apparently never said. (Or at least not exactly like that.) But it’s still a pretty catchy phrase and not a bad first instinct. So from that perspective, perhaps, the results from the US-China trade negotiations in Buenos Aires are to be welcomed. Talks resulting in an agreement for more talks over the next three months is a pretty good alternative to a severe intensification in the ongoing trade conflict between the nations.

So here we are: The American tariff rate on $200 billion in imports from China will stay at 10 percent rather than rising to 25 percent. And China, according to the Trump administration, will “purchase a very substantial amount of agricultural, industrial and energy, products.”

But remember that what emerged from Argentina was not the prevention of conflict. The “war, war” has already started and restraint from escalation is not the same as peace. What’s more, the prospects for peace are murky as best. Although Wall Street seemed to like what the two presidents cooked up, Goldman Sachs noted “no concrete progress on the other important issues of market access, IPR protection, cyber attacks, and forced technology transfer,” not all of which Beijing will even concede are problems. How those issues are approached in the coming week will determine whether this entire conflict is about deals and deficits or about subsidies and strategy.

It’s easy to lose the narrative here. If a key goal is to make China a more market-driven economy that’s a responsible global player, then why are we encouraging it to act like a command economy where Beijing can instruct more purchases of US products? A good point in the Financial Times from Brendan Greeley: “In an open market, China’s companies and hog farmers should buy oil and soyabeans from wherever they’re cheapest on the global market. Mr Xi shouldn’t have the power to compel them to buy from Texas and Iowa. That he can is in fact the definition of the problem the world’s free-market economies have with China.”

More importantly, as my colleague Derek Scissors notes, “China’s development model involves acquiring foreign technology by hook or by crook, and warping competition at home while demanding open markets overseas.”

Will three more months of negotiations result in a marked change of course? Highly unlikely. Now I’m not a big believer that what China does is nearly as important as what we do to maintain our economic competitiveness and technological leadership. But it would be a better and more prosperous world if China returned to a pro-market path. So it’s certainly worth pushing issues such as WTO reform to help better deal with the Chinese model, assuming the Trump administration still sees the WTO as a useful instrument. (Although that wouldn’t preclude more direct action.) Confronting China on these issues will also require a coherent and long-term effort by all of the world’s democratic capitalist nations, an effort derailed by our abandonment of the Pacific trade deal.

Published in Economics
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There are 3 comments.

  1. Member

    James Pethokoukis: If a key goal is to make China a more market-driven economy that’s a responsible global player, then why are we encouraging it to act like a command economy where Beijing can instruct more purchases of US products?

    That is NOT a key immediate goal. China is a communist, centrally planned, command and control economy. That isn’t changing any time soon. Would it be nice if it did change. Sure. But that is a long-term goal.

    China undertakes all sorts of actions harmful to America, American interests, the American economy and American jobs. Market access, cyber-attacks, technology theft, subsidiziation of selected industries, forced technology transfer etc. We’d like them to stop that. At least stop some of it. That is a short to medium term goal. They seem unwilling to budge at the moment

    Immediately, they have offered to at least partially offset the harm they are doing by buying more American stuff. What’s the old Reagan saying? If someone offers you half a loaf, take it.

    No, it’s not much But it beats getting poked in the eye. And it demonstrates that the threat of tariffs produces at least some positive reaction. Useful information for subsequent iterations. 

     

    • #1
    • December 4, 2018 at 1:12 pm
    • 1 like
  2. Coolidge

    James Pethokoukis: More importantly, as my colleague Derek Scissors notes, “China’s development model involves acquiring foreign technology by hook or by crook, and warping competition at home while demanding open markets overseas.”

    Ekosj (View Comment):
    China undertakes all sorts of actions harmful to America, American interests, the American economy and American jobs. Market access, cyber-attacks, technology theft, subsidiziation of selected industries, forced technology transfer etc. We’d like them to stop that

     

    This is what the “war” is about. China, Inc. does not compete fairly. They cheat and steal technology to put American companies out of business. It is a zero-sum game for them and winner-take-all. This war has to continue until the Chinese people take to the streets to protest the economic impact. I don’t know how long that will take in an Orwellian state, but that will be a sign that it is time to settle a deal. China will attempt to wait out Trump, hoping the next president is a Dem. and knowing they control the DNC. I look for change in the status quo in 9 months or so.

    • #2
    • December 4, 2018 at 1:42 pm
    • 1 like
  3. Member

    The assumptions underlying these trade deals are that a group of US bureaucrats can understand both economies in enough detail to know what has caused the problems in specific sectors that derive from the impact of another country’s economy, on ours, what we can unilaterally do about it, how those changes will effect our economy and every other trading partner now and in the future. They assume that organized interests in the trading partners country and our own will be neutral, wont shape that outcome now or in the future and that the organized interests influence will be benign.

    Folks this is why planned economies don’t work. Why the third world is third world and why countries gradually stagnate and die.

    There are things we can do that improve the rate of adjustment, the current account deficits, the overall efficiency and health of our economy, that can increase opportunities for human flourishing, but none of them are based on central planning and the assumptions that we understand the past, the present and the future of one of the most complex things on earth, the human economy. We don’t because it’s impossible.

    • #3
    • December 5, 2018 at 4:43 am
    • Like