7 December 2018

Mark as favorite 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.

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