Putting the Squeeze on China Could Turn Into a Trade Disaster for Trump
Pushing China to Override Kim Jong Un Is a Non-Starter
Get set for the Trump administration’s big new push on China. The White House wants to turn tough on trade problems while putting more pressure on Beijing to force North Korea away from its nuclear and missile programs.
Washington came alive with new strategies this week. The White House has its list. Commerce Secretary Wilbur Ross has his ideas. More come from both sides of the aisle on Capitol Hill. There are three problems with all this. No. 1, the policy moves now being discussed stand little chance of working so long as the administration continues to posture and shout without negotiating. No. 2, some policies now proposed will hurt the U.S. as much or more than China.
The third problem is the biggest: There are high risks that aren’t worth taking. The U.S. does not want a trade war with the world’s No. 2 economy, and a full-court press such as the administration seems to be planning is very likely to start one. Just as seriously, pushing Beijing harder on North Korea—including sanctioning some of its banks and companies—will do nothing other than further alienate the Chinese while increasing the chance of a dangerous military intervention on the Korean Peninsula.
President Trump signaled this tough, two-pronged strategy in a pair of tweets on China last week. “Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade,” he wrote last Friday, “yet they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue.”
As policy reversals go, this is as stark as it gets. Trump’s effort earlier this year to wring benefits from a supposedly chummy relationship with Xi Jinping is out the window. He’s now back in Obamaland: China’s not our partner. It’s our competitor, if not our adversary.
It took one weekend after those Tweets for policy proposals to begin flying in Washington. Here are the major ones:
• The White House’s new plan is expected to be issued very shortly. It could lead to wide-ranging tariffs on Chinese imports and the de-licensing of Chinese companies with U.S. operations.
The focus is on possible violations of intellectual property law and China’s regulations requiring U.S. companies to share technical research, product development, and production techniques with local firms. Technology transfer rules of this kind have been a staple in developing countries for decades.
How the administration will move isn’t yet certain. It may launch a formal investigation, a “Section 301,” under the 1974 Trade Act, or it may invoke the 1977 Emergency Economic Powers Act. Note the dates: Both laws were written in response early waves of Japanese imports.
• Wilbur Ross, the commerce secretary, and a longtime trade hawk is focusing on three different things: tariffs, nontariff barriers—dense bureaucratic procedures, unwieldy certification requirements—and what amount to subsidies: low-interest loans to industry, tax breaks, government grants, and the like.
“Until we make better deals with our trading partners, we will never know precisely how much of our deficit in goods is due to such trickery,” Ross wrote in a blistering opinion piece in The Wall Street Journal last Tuesday. “But there can be no question that these barriers are responsible for a significant portion of our current trade imbalance.”
• On Capitol Hill, Senator Chuck Schumer is targeting the North Korea crisis. In a letter to the White House this week, the ranking Democrat urged Trump to stop, “all mergers and acquisitions in the U.S. by Chinese companies” via the Committee on Foreign Investment in the U.S. CFIUS is an executive branch agency that typically weighs the national security implications of important foreign acquisitions.
“It is my assessment that China will not deter North Korea unless the United States exacts greater economic pressure on China,” Schumer wrote.
There is more behind to these proposals. The Trump administration got nowhere with China in its first round of trade talks, held in May.
More broadly, China’s now implementing a hugely ambitious plan called Made in China 2025 to become a world leader in 10 industries, including electric cars, solar technology, semiconductors, and robotics. The strategy is straight from the Japanese model, which designated “strategic industries” in the 1950s and 1960s. Those became the giants of the 1970s and 1980s.
As the Japanese case showed, it’s wholly unrealistic to keep trade relations fixed as a nation sustains very rapid growth. China now is roughly Japan in the 1960s.
The administration is correct on a fundamental point. Tech transfers that were fair 30 years ago can easily turn unfair to American companies as China climbs into advanced industries. Tariffs and other barriers that were acceptable when China started on the development ladder must come down now that it’s climbing higher.
China’s going in the other direction in some ways. It now wants to require tech companies such as Apple and Microsoft to invest in R&D facilities on the mainland.
Solving this imbalance requires a new strategy. But an adjustment only works when it’s an ongoing process, the outcome of dense interaction among trade technocrats. This is what the Chinese insist upon. Trump’s problem is he needs a sophisticated, practiced trade team and doesn’t have one.
The policies made public in Washington this week take a unilateral, chop-and-change approach that are guaranteed to prove counterproductive. Push this too far, and the White House risks the mother of all trade wars. The Chinese know a thing or two about tariffs and licensing, after all.
By far the most ill-considered idea floated this week is Schumer’s. Blocking Chinese M&A is doubly wrong.
First, the Chinese are investing heavily in the U.S. now, focusing on takeovers of second-tier companies that need capital and hope to sustain millions of jobs. Schumer proposes to cut this off?
Second, the sooner Schumer and others in Washington understand that pushing China to do more on North Korea is a blood-from-stone, effort the better. Beijing has done all it intends until the U.S. signals it is prepared to sit at the negotiating table with Pyongyang.
Beijing has also indicated it is delinking North Korea from its trade negotiations with Washington. Senator, you’re on the road to nowhere.