Economy & Business

On China, Pinholes and Pinpricks

President Donald Trump and China’s President Xi Jinping shake hands in Beijing, China, November 9, 2017. (Damir Sagolj/Reuters)

There are two major problems with the new Washington–Beijing trade accord announced by the Trump administration: First, it isn’t much of a trade deal; second, the principal problem in the U.S.–China relationship is not trade.

There are some benefits to the deal. These are important and should not be overlooked. For one thing, signing even a partial and preliminary deal (which is what “phase one” means) may relieve some of the uncertainty that currently imposes heavy costs on businesses in the United States and abroad. A higher degree of certainty will encourage investment and long-term economic growth.

And while it has imposed heavy costs on U.S. businesses ranging from soybean farms to steel mills, the trade war has credibly demonstrated to Xi Jinping and his cronies that the United States has the ability to inflict real economic pain on China, and that the subsequent disruption will be borne with far more strength and flexibility by the U.S. economy — which enjoys the dynamism associated with genuinely free enterprise rather than the nationalistic neo-mercantilism practiced by Beijing. The trade war has put the Chinese back on their heels if not quite down on their knees. In that, President Trump has accomplished precisely what he intended.

And, in a sense, that is part of the trouble with the trade deal: Beijing is hurting, and hurting enough that Xi Jinping et al. almost certainly have done here what they have done so many times in the past: assuage Washington by making promises that they have no intention whatsoever of keeping. Among other things, China has promised to increase its imports of U.S. goods by about 50 percent — in only two years. The deal obliges China to increase its imports of U.S. goods by $200 billion over two years from a baseline of about $185 billion a year.

This is not ambitious — it is implausible.

As Josh Rogin points out in the Washington Post, Beijing signed trade memoranda with the United States in 1989, 1992, 1995, and 1996, and declined to honor any of those agreements. An agreement on economic espionage negotiated by the Obama administration in 2015 also has come to naught.

With this agreement, Beijing is not buying soybeans — it is buying time. There is an election in November, as some of you may have heard, and Chairman Xi almost certainly is wagering that he can run out the clock either on the Trump administration itself or simply on its attention span.

The agreement commits Beijing to cracking down on counterfeit goods and establishes new penalties for failing to comply. It also obliges Beijing, in a very general way, to liberalize the rules hampering the operation of U.S. financial-services firms in Beijing. But it does not specifically require the repeal or reform of any particular law or regulation, and Beijing has shown itself more than able to thrive and maneuver in such vagueness.

As for the bigger “structural” picture — that China’s economy is ruthlessly regimented under a system of subsidies and controls that will continue to disadvantage overseas firms irrespective of the superficial (and, so far, hypothetical) changes associated with any Beijing–Washington accord — the agreement remains silent. That’s a concern for “phase two,” apparently, should such a thing ever come to pass.

We are not confident that it will, given the real issue here, which is the character of the Beijing regime.

China maintains some abusive trade policies, but the fundamental problem with the Chinese government is not how many tons of Nebraska-grown soybeans get unloaded on Nantong docks. The problem is that the Chinese government is a totalitarian, one-party police state that currently is packing ethnic minorities into concentration camps, harvesting the organs of dissidents, stamping out civil liberty in Hong Kong, and bullying neighbors from Taipei to New Delhi. Negotiations over trade difference is not a mere distraction, in that these issues are important in their own right, but neither is a trade accord a substitute for a more robust and credible policy that takes account of U.S. interests beyond commerce, including human rights, democracy, and peace.

These are not questions that will be resolved by a trade deal, much less by a weak trade deal. Viewing the confrontation with China through the pinhole of trade relations is an error.

The trade war has been tough on the Trump administration politically, with much of the collateral damage happening in the heart of Trump country, particularly in the farm economy. That the White House has not been exactly deft in its handling of the economic disruption has made things worse (and more expensive) than they needed to be. It is not surprising, then, that the Trump team wishes to put this issue behind it as it goes into the 2020 election. It can sign the accord and declare victory; if the agreement turns out to be as wan and ineffectual as it appears it will, the consequences will not be manifest before the presidential election. Trump the anti-politician has learned at least some of the ways of Washington.

But the truth is that the U.S.-China relationship is not something we can put behind us, even temporarily — neither the broader overall relationship nor the relatively narrow commercial concerns addressed, to the modest extent that they are, in this trade deal. A step in the right direction is better than a step in the wrong direction, but this is a very modest and halting step — and one that is very likely to come to naught without the kind of consistent, careful attention for which the Trump administration has not earned much of a reputation.

By all means, declare victory having signed the deal. But the president and his team should understand that this represents not the conclusion of their work on China but only a very modest beginning to it.

The Editors comprise the senior editorial staff of the National Review magazine and website.

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