How China became Trump’s trade nemesis
If I had one wish it would be that the leaders and trade negotiators of the U.S. and China would go on a weekend retreat together – I’d suggest Singapore – with a facilitator – I’d suggest Singapore’s prime minister, Lee Hsien Loong – with no press or tweeting allowed and try to work out the basic trade and geopolitical understandings to govern their future ties.
Because if their trade tit-for-tats keep intensifying, they’re going to do something that they and the rest of the world will profoundly regret – fracture the foundations of globalization that have contributed so much to the prosperity and relative peace the planet has enjoyed since fighting two world wars in the last century.
The U.S. and China are the two most powerful countries and economies in the world. Their economies are also totally intertwined. If they start ripping out the telecommunications wiring, manufacturing supply chains, educational exchanges and financial investments that they’ve made in each other since the 1970s, we’ll all end up living in a less secure, less prosperous and less stable world.
If you don’t think that’s a real prospect, you haven’t been paying attention.
President Trump was right to engage in some trade shock therapy with Beijing. China no longer just wants to sell the U.S. toys and tennis shoes. It now wants to sell the same high-tech products, like 5G telecom, robotics, electric cars and AI systems, that America specializes in.
So China had to be made to bluntly understand that the U.S. would not look the other way anymore from China’s long-standing abusive trade practices, nor would it be bought off, either.
We need a level playing field – but not a new battlefield.
“A strategic reset was needed in relation to 21st-century China, but the danger is that we’re sleepwalking into a generational conflict that is neither necessary nor one that we in the West are prepared for, any more than the Chinese,” observed Nader Mousavizadeh, co-founder of Macro Advisory Partners, a geopolitical consulting firm that advises many global companies doing business in China.
There has been a tendency in Western policy toward China, added Mousavizadeh, to lurch “from the lazy truism that the U.S.-China relationship is the most important one of the 21st century – and therefore should be shielded at all costs from ordinary economic and geopolitical pressures – to an equally lazy fatalism about a new great power conflict with China. But there is nothing inevitable about a new Cold War.”
Yet, this seems to be what we’re stumbling into. “The new divide with China may begin with technology and continue with finance and manufacturing but it ends, ultimately, with people,” noted Mousavizadeh. “If the tariff war now underway culminates with removing Chinese citizens from Western businesses, and U.S. citizens from Chinese companies out of fears of espionage or theft, it will constitute an irreversible step toward generational enmity.”
While I agree with Trump’s core instinct that the trade issue had to be addressed in strategic fashion, I disagree with his total reliance on tariffs to force China to the table.
Tariffs are so open to abuse, as each sector of the U.S. economy – like farming – demands special exemptions or payoffs. And more important, this approach makes the conflict all about America versus China on trade, when this should be about the world versus China on trade. Because European, Asian and Latin American countries all have the same trade problems with China that we do.
Trump should have signed the Trans-Pacific Partnership, which brought together the 12 biggest Pacific economies excluding China, representing 40 percent of global GDP, behind U.S. trade standards – and then sought to bring along the European Union as well – into a single coalition to negotiate a new trade regime with Beijing.
Instead, Trump tore up TPP and alienated the Europeans by imposing various steel and aluminum tariffs on them. So foolish.
But that’s now water over the dam.
Trump’s team thought its approach was working – that tariff pressures plus negotiations would get China to enact into its laws restrictions on cybertheft of intellectual property, forced technology transfers, certain subsidies to Chinese companies, nonreciprocal trade rules, currency manipulation and barriers to China’s financial services markets, among other issues. Negotiators also discussed a detailed process for adjudicating disputes.
All along, though, the Chinese complained that the language sought by the U.S. was one-sided and tantamount to a confession of guilt by China that would make it look as if President Xi Jinping was kowtowing to the U.S.
The Chinese also complained that Trump was making excessive demands in terms of the amount of U.S. goods and services he wanted China to buy to reduce the trade imbalance and that the U.S. would still not guarantee to end tariffs.
Also, some Beijing hard-liners wanted to teach the Americans a lesson about the real balance of power today – or, as one of them put it to me last year: “You Americans are too late. We’re too big to be pushed around anymore.”
Whatever the reasons, in the first week in May, following intense trade talks in Beijing – which left the Americans thinking they were getting close to a deal – the Chinese sent back their latest edits on the working draft: On page after page, sources said, lines were drawn through almost all the clauses the two sides had been negotiating for months. No deal.
Trump was livid, and on May 10, he hiked the tariffs on another $200 billion in Chinese exports to the U.S. to 25 percent from 10 percent. Beijing then slapped new tariffs on $60 billion of U.S. products.
On a separate track, Trump put Chinese telecom giant Huawei on a list of companies that need special permission to buy U.S.-made microchips, software and other components. The reasons were Huawei’s long history of reported stealing of intellectual property and the fear that if our allies bought Huawei’s 5G telecommunication system it would open them and us to much greater Chinese espionage.
China retaliated with an edict to strike back at any foreign company that boycotts Huawei.
And that is how a trade war can escalate into a full-scale U.S.-China economic war. It may be that China’s government simply cannot or has no desire to change its growth model – hard work, smart infrastructure and education investments, a high savings rate, plus lots of unfair trade practices – because it would mean the end of Communist Party rule.
It may be that 2019 will mark the beginning of both the Sino-American geopolitical and economic Cold War and the erecting of an equivalent of the Berlin Wall down the middle of the global technology market, dividing those that trust installing Chinese technologies to power their 5G phones, computers and internet systems and those that don’t.
I don’t know if that’s where we are. I do know we urgently need to avoid that place if we can. The two sides need to get together at the highest levels and explore whether there is a credible – but more gradual – approach to changing China’s trade practices that we both can live with.
And they have to explore whether there is an alternative to just banning companies like Huawei, such as fining or suspending them for abuses, while giving them a clear road map back into our markets if they demonstrate that they’ve cleaned up their act.
Our goal should be to move China toward global best practices on all these issues, not to isolate it and create a bifurcated world economy, internet and technology market.
It would help if we were mobilizing every one of our allies in this project, not hammering them with tariffs, too. It would help if we had a president who was more respected around the world and did not always have to be seen as “winning” and the other guy as losing.
It would all help. But here is where we are. And where we are is really dangerous.
Thomas L. Friedman is a Pulitzer Prize winning New York Times columnist.