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Trump’s not so great deal with China
By Dr. Peter Morici
President Trump’s recent summit with Chinese President Xi Jinping was only modestly successful. The hard reality is that on both security and economic issues, the United States and China are rivals — not partners — and much tougher days lie ahead.
Messrs. Trump and Xi reached no substantive agreement to curb North Korea’s nuclear program and on trade, the two leaders initiated a 100-day review process whose ultimate objective is unclear.
For several decades, China accomplished double-digit growth by exporting consumer goods to western markets while keeping its economy tightly controlled. It imposes high tariffs and administrative barriers to imports, compels western companies to manufacture in China and transfer technology in order to access its markets, aggressively subsidizes domestic firms, and dumps products abroad in industries plagued by excess capacity.
The United States absorbed the brunt of this onslaught. The $310 billion U.S. trade deficit with China has shuttered factories, left millions discouraged and permanently unemployed, and imposes slower growth and huge foreign debt.
Manufacturing has been hardest hit and that curtails U.S. investments in new technology — both on the factory floor and in next-generation products such as industrial robots. Without addressing the bilateral trade deficit, Mr. Trump cannot deliver 3 percent to 4 percent growth.
As rising wages challenge manufacturers in Chinese coastal cities, the Communist Party must demonstrate it can still deliver significant growth. Beijing is becoming more, not less, protectionist and is targeting high-technology activities that strike at the heart of American prosperity, subsidizing startups and buying western businesses. It is tightening its authoritarian grip through control of the Internet and a social credit rating system that monitors personal activities to allocate access to jobs, housing and the like.
Those tactics violate World Trade Organization rules and western democratic norms, but Beijing has no desire to conform to western expectations of a communist state transitioning into an open, pluralistic society. Rather, it offers state-directed capitalism and authoritarian governance to developing nations as a superior model to what the United States and European democracies offer.
As menacing, China is using wealth amassed from huge trade surpluses to substantially build up naval and air power, assert sovereignty over neutral waters in the South China Sea, and project soft power in the Pacific and elsewhere through its Asian Infrastructure Investment Bank and other projects.
President Obama did not heed U.S. defense leaders’ advice to more forcefully challenge China’s militarization of the South China Sea and North Korea, and Chinese muscle and money have encouraged key U.S. allies, the Philippines and Malaysia, to shift their favor toward Beijing.
President Trump faces the unenviable task of persuading Beijing to constrain Pyongyang’s nuclear ambitions while pushing back on its illegitimate claims in the South China Sea and redressing the bilateral trade deficit.
By failing to adequately cooperate on North Korea, Beijing has skillfully diverted American attention from the latter challenges. The Mar-a-Largo discussions did little to substantively address China’s provocations in the Pacific and for several decades, Beijing has tied up American presidents in endless economic dialogues and dead-end negotiations.
The 100-day process initiated in Mar-a-Largo sounds like a rehash of the Strategic and Economic Dialogue, which accomplished little during the Obama years.
On trade, either the United States obtains from China a blueprint with enforceable benchmarks to reduce and ultimately eliminate the trade deficit or the United States should impose such an arrangement unilaterally.
Abruptly imposing a 45 percent tariff would unnecessarily disrupt both the Chinese and U.S. economies. However, initially applying a 10 percent levy — or equivalent tax on the conversion of dollars into yuan, which would also impact on investment into China — and then increasing it by 10 percent every six months would go a long way toward persuading Beijing to curtail its mercantilist practices. At the very least, it would adequately insulate the U.S. economy while American businesses adjust to scaled-back bilateral commerce.
Those are tough measures — and Americans would likely pay more for toasters and T-shirts at Wal-Mart — but the benefits of putting millions of Americans back to work and restoring growth would far outweigh those costs.
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.