Economy & Business

Trump Is Making It Harder to Tackle Chinese Cheating

Container ship at the Yangshan Deep Water Port in Shanghai, China, in 2016. (Aly Song/Reuters)
This isn’t about enforcing the rules. It’s about undermining trade, period.

The Trump administration is preparing to implement a 25 percent tariff on over a thousand types of goods imported from China. The move, set to go into effect next week, has been met with opposition from American retailers and tech manufacturers, who fear that the jump in costs will disrupt supply chains and push prices beyond what the market will bear.

The White House, though, claims it is simply enforcing the rules.

It asserts that China is cheating, and on that it is correct: 70 percent of software used in China is pirated, amounting to over $8.5 billion in value; China’s overall intellectual-property infringement, counterfeiting, and theft of trade secrets has been estimated to cost the U.S. economy over half a trillion dollars annually

The Trump administration is not alone in thinking that this calls for action, either. Where trade experts such as James Bacchus and Dan Ikenson differ with the administration, however, is in how to tackle this problem.

The administration claims that tariffs will stop Chinese cheating by making it difficult to buy products from there. Instead, they raise the cost of living for ordinary Americans and have already led to a back-and-forth of tariffs between the United States and China, making the American export market face trouble as well.

If, as an alternative, the administration brought a case against China on the basis of Article 39 — the World Trade Organization obligation to respect intellectual property and trade secrets that China agreed to — it would target the specific cheating, rather than imposing a broad restriction on Chinese imports in the hope that it will solve the problem. The WTO approach would also provide considerably more leverage than a unilateral American trade action.

Bacchus also fears that the Trump administration’s other trade efforts, spearheaded by the fierce protectionist Robert Lighthizer (who serves as trade representative) and the proudly sycophantic Peter Navarro (director of trade and industrial policy), are actually undermining the very institutions that are capable of taking corrective action. The administration pulled the U.S. out of the Trans-Pacific Partnership, which could have allowed smaller, market-oriented countries throughout Asia to work with America for their common interest in free trade (and to stand up to Chinese pressure), and has shown hostility to the World Trade Organization.

At a recent World Trade Organization summit, Lighthizer showed up —  to the pleasant surprise of free-traders — only to deliver an address about the president’s displeasure with trade and the WTO and then immediately leave. As a result, the United States did not participate in discussions over measures to tackle cheating and distortions in the fishing market and to promote free trade in environmental goods such as solar panels; both failed. Even if the attempts had passed without U.S. support, it is not in the American interest for the United States trade representative to recuse himself from these discussions and therefore avoid an American role in updating the rules.

The administration has been sending mixed messages here. The official “Economic Report of the President” from this February praises the WTO process throughout, listing example after example of the organization taking American complaints about unfair practices, such as Indonesia’s regulation against poultry-part imports (a big U.S. export market), seriously and acting on them. It notes that the U.S. “gets better outcomes via formal WTO adjudication than negotiation, increasing the probability that the complaint will be resolved and decreasing the time it takes to remove the barrier in question.” The U.S. has prevailed 91 percent of the time it has brought a complaint before the WTO, while China has prevailed in just 66 percent of its complaints.

Surely, if the concern were to tackle dishonest behavior, then a time-tested forum in which the U.S. has done just that for decades would be the obvious method. China’s behavior in the realm of IP and trade secrets can and should be comprehensively challenged through the WTO; the case is strong and would almost certainly be successful. This approach would take more work than a quick and headline-grabbing import tax, but unlike such a tax it would be built on a lasting framework.

Regardless of how Trump is selling his tariffs, their true aim and effect are not to address the real problem of Chinese cheating, but to inhibit trade in general.

Conservatives (and not only neoconservatives) have often talked about American leadership, about the notion that the U.S. must set an example, because otherwise the example will be set by powers such as Russia. This example, in theory, entails a commitment an international order built on free exchange. Even the Trump administration seems to make this claim, in the “Economic Report”; it credits the United States for leading “contemporary multilateral efforts to promote trade liberalization,” bringing up the WTO and its predecessor GATT as examples of this phenomenon. When the U.S. ignores these efforts, they become considerably less popular on the global stage.

But perhaps this is the point. It seems contradictory, at first, to see a detailed White House report that credits the WTO for its effectiveness in adjudicating trade complaints and then see the president lambast the very same organization for being a Chinese stooge that’s out to damage America. Looked at from a perspective of hostility to trade (and especially imports) in general, though, it makes sense: To Trump, “cheating” is merely an effective talking point, as the allegation appeals not only to protectionists but to free-marketeers who believe in following the rules. Even if China mended its ways, opposition to global trade from the likes of Lighthizer, who has spent his career lobbying for protectionism against a variety of countries, would not go away; only the arguments would change.

Trump believes that the United States loses when Americans buy foreign products, and sometimes even when foreigners buy American real estate. This has been a consistent note in his economics for decades, though the managers of his own merchandise have known better than to act on these beliefs.

Regardless of how he is selling his tariffs, their true aim and effect are not to address the real problem of Chinese cheating, but to inhibit trade in general. Those who wish to bring China to account and who support a liberalized global trade regime ought to realize that the Trump administration does not share their goals. And if the U.S. continues to absent itself from the World Trade Organization, it will only strengthen Xi Jinping’s hand.

Editor’s Note: This article originally referred to U.S. Trade Representative Lighthizer as “Richard Lighthizer.” In fact, his first name is Robert.


The Latest