How China became Trump’s trade nemesis
If you think that the U.S.-China trade dispute is going to be easily resolved, you’re not paying attention. It’s so much deeper than you think – and so much more dangerous.
If President Donald Trump and President Xi Jinping don’t find a way to defuse it soon, we’re going to get where we’re going – fracturing the globalization system that has brought the world more peace and prosperity over the last 70 years than at any other time in history.
And what we’ll be birthing in its place is a digital Berlin Wall and a two-internet, two-technology world: one dominated by China and the other by the United States.
Trump and Xi should drop everything and sit down to resolve this crisis before it becomes a runaway train – fueled by populists and nationalists, and amplified by social media, in both countries.
How did we get here? Two things converged: The character of U.S.-China trade changed – it went “deep,” and both Xi and Trump overplayed their hands and freaked each other out.
What do I mean that trade went “deep”? For the first three decades, U.S.-China trade could be summarized as: America bought T-shirts, tennis shoes and toys from China, and China bought soybeans and Boeing jetliners from America.
As long as that was the case, we did not care whether the Chinese government was communist, capitalist, authoritarian, libertarian or vegetarian.
But over the last decade, China has become a more middle-income country and a technology powerhouse. And it unveiled a plan, called “Made in China 2025.”
This was Xi’s plan to abandon selling T-shirts, tennis shoes and toys and to instead make and sell to the rest of the world the same high-technology tools that America and Europe sell – smartphones, artificial intelligence systems, 5G infrastructure, electric cars and robots.
I welcome China as a competitor in these areas. It will speed up innovation and drive down prices. But these are all what I call “deep technologies” – they literally get embedded into your house, your infrastructure, your factory and your community. And unlike dumb toys, they are all dual use.
That is, they can potentially be used by China to tap into our society for intelligence or malicious purposes. And once embedded, they are hard to remove.
The other reason we’re having this trade war is that both Xi and Trump have overreached.
Beginning five or six years ago, American companies doing business in China began to change their tune. Their old tune was that the Chinese were requiring them to transfer technology, stealing their technology and forcing them to play by different rules than Chinese companies in America.
But when the American government asked them if it should intervene with Beijing, they’d usually say: “No, don’t rock the boat. We’re still making money here.” No more.
More and more American companies complained in recent years that their access to the China market was being constricted, while their Chinese competitors were gaining scale and power inside of China’s protected market and then competing with these U.S. companies globally.
Someone had to call that game. And that was what Trump did, and he was right to do it.
But he did it in an incredibly foolish way! Trump should have signed the Trans-Pacific Partnership free trade agreement, which would have aligned all the major Pacific economies – except China – around U.S. trade values, norms, interests and standards, and lowered thousands of tariffs on American products.
Then Trump should have lined up all the European Union countries, which have the same trade problems with China as we do, on our side. Instead, Trump hit them with tariffs on steel and other goods, just as he did China.
But Xi is also to blame. He has frightened his neighbors by seizing islands in the South China Sea against international law. He has frightened the West by announcing plans to dominate every new technology industry by 2025, while retaining the same trade restrictions of the last 30 years.
His negotiators gave clear indications early on that they were ready to give up some of their unfair trade practices, but then suddenly pulled back in May.
Is there a way out? If I were Trump, I’d postpone the latest 10% tariff on $300 billion in Chinese exports in return for China’s walking back its latest blows to American agriculture, and then offer the Chinese an approach that recognizes it as an economic equal.
If China does not want to grant equal access to its economy in some sectors, then it won’t enjoy that access for its companies in America, and vice versa.
If somebody has a better idea, put it out there, because if both sides don’t find a better way, the world as we’ve known it is going to change.
Thomas L. Friedman is a New York Times columnist.