On Thursday, Chinese vice premier Liu He will arrive in Washington for the first high-level trade talks with American officials since July. With new tariffs on virtually all Chinese exports to the U.S. slated for December 15, these negotiations may be the last chance to prevent a sharp escalation.
A White House press briefing Monday stated that discussion would pertain to a wide range of topics, including “forced technology transfer, intellectual property rights, services, non-tariff barriers, agriculture, and enforcement.” However, Chinese officials have narrowed the scope of the upcoming talks, refusing to make any concessions on industrial policy or subsidies to domestic firms, according to Bloomberg News.
It is unlikely that a deal will be reached at this stage. According to the Heritage Foundation’s Riley Walters, neither the Chinese nor the Americans feel sufficient pressure to make meaningful concessions. For the Chinese, removal of all American tariffs is a precondition for a deal, but the White House does not want to give up the leverage provided by tariffs until it can confirm that China is complying with the requirements of an agreement. The upshot: a continued standoff, with tariffs harming both economies.
At present, trade uncertainty has cost the U.S. up to 0.8 percent of GDP, according to Federal Reserve Board research. The good news is the American economy is resilient enough to continue growing despite tariffs. But with a gauge of American manufacturing health showing its lowest reading since 2009, the repercussions of the trade war are clear, the benefits less so.
At the outset of this trade dispute, administration officials argued that tariffs would impose short-term costs in exchange for the long-term benefits of a liberalized Chinese economy. Two years in, such an outcome appears increasingly fantastical. Instead, both sides eat the costs of tariffs and refuse to budge.
Scott Kennedy of the Center for Strategic and International Studies told National Review that the persistent impasse is a result of strategic flaws in the White House’s approach. When Trump took office, administration officials had the opportunity to shore up support for the global trading order, enlisting our allies in multilateral actions against China. Instead, three days into his presidency, Trump signed an executive order withdrawing from the Trans-Pacific Partnership, a trade agreement that included four of China’s top eight trading partners. With provisions enforcing intellectual property rights and restricting state intervention in the economy, that deal would have equipped the U.S. with tremendous leverage in isolating China and softening the blow of decreased bilateral trade.
In the same vein, Trump’s first tariffs were levied on all washing machines and solar panels — not just those from China — which elicited a World Trade Organization complaint from South Korea. Next, the White House imposed tariffs on steel and aluminum imports, with a mere 6 percent of those tariffs applying to China. Simultaneously, the president has continually threatened to withdraw from bilateral defense agreements with Japan and Korea. Rather than presenting a united front against a violator of international trading rules, the United States began skirting those rules itself. Only after limiting imports from allies did the Trump administration announce tariffs specific to China.
Unsurprisingly, a president hostile to trade deficits has indiscriminately curtailed global trade. With retaliatory tariffs imposed by India as recently as June of this year, the U.S.–China trade war might be more properly called a global war on free trade.
This is not to say tariffs are inherently wrongheaded, Kennedy says. Imposing unilateral tariffs, he argues, was initially “justified, given the challenge the Chinese economic system presents to us and Beijing’s intransigence.” Indeed, the president deserves credit for addressing Chinese malfeasance. Before 2016, policymakers bought into the false hope that China would liberalize its economy on its own, without any prodding from its trading partners. Nonetheless, at key inflection points, the administration has “not capitalized on the leverage the U.S. gained.”
One reason is the White House does not know what it wants. Trade negotiators have yet to articulate the reforms necessary for removing tariffs. Often, they have gotten sidetracked by relatively unimportant goals, such as the push to increase American agricultural exports to China. Chinese authorities halved their purchases of American soybeans in response to tariffs. By demanding that China buy more soybeans, the president has put undoing the harm of his trade policy at the center of negotiations, rather than wielding tariffs to corral meaningful reforms. As a result, China can point to minor concessions in lieu of serious concerns.
This is not to say a positive outcome with China is impossible. Facing mounting debt, increasingly violent protests in Hong Kong, and a slowing economy, Chinese authorities may relent. In an interview with National Review, William Schneider of the Hudson Institute pointed out that some members of the Chinese Politburo have resisted Chinese president Xi Jinping’s aggression. They could respond by lessening his authority and taking a more diplomatic approach toward America.
After two years of fruitless negotiations, it will take a miracle.