President Trump has some bipartisan support for playing hardball with China over trade, and it’s easy to see why. The Chinese regime has pursued mercantilist policies that harm Americans (and others in the developed world), notably through the theft of intellectual property and the forced transfer of technology. It is also now clear that policymakers in both parties had too optimistic a view of how rapidly China’s integration into global markets would improve the character of its government. Chinese trade negotiators seem also to have surprised their American counterparts by retracting concessions they had already made. While their tactics may have been a response to mixed signals they got from the Trump administration, they are not ones that should be rewarded.
Trump responded to the setback in talks by raising tariffs, and China reciprocated. The escalation of the trade war poses increasing risk to our economy, as stocks have been signaling. The best course for the U.S. now would be to reach a swift resolution in the current talks — getting back to the deal that seemed to be on the table before China miscalculated — and then switch to a strategy for changing Chinese behavior that does not depend so thoroughly on possibly backfiring tariffs.
The president has already hinted at what such a strategy would look like when urging companies to move their supply chains from China to other countries such as Vietnam. That suggestion was doubtless glib, overlooking the costs of re-siting and the distinctive advantages that can accompany investment in China. The intuition that trade with other countries in the region can be useful in exerting pressure on China is, however, correct. It is the same thought that underlaid the Trans-Pacific Partnership. The president took the U.S. out of it, in part because he did not focus on its utility in reshaping the economic environment in favor of our economic model rather than China’s. But the other countries involved are moving ahead with the idea, and we should find a face-saving way to revive our participation. Trump has reportedly been open to this suggestion.
We should also make a new commitment to bringing cases against Chinese abuses before the World Trade Organization. This administration has followed its predecessors in declining to take full advantage of that forum, even though it has had some success in forcing reform. And we should work in concert with other countries that have suffered from these abuses, which may require us to end less pressing trade conflicts with Europe, Canada, and Japan.
Both the country’s economic interests and Trump’s political interests counsel in favor of making progress with China while minimizing the damage that both our tariffs and its inflict on us — damage that both is worth avoiding for its own sake and places inherent limits on our leverage. So take a deal, even a limited one, and then pursue less dangerous ways of pressuring China.