Trump Tangles with China on Trade

 /  May 19, 2018, 4:10 p.m.


The Trump administration has used increasingly heated rhetoric about China and its trade policies toward the United States in recent months. That talk has been backed up by action, as Trump recently slapped China with various tariffs and economic measures to prevent China from continuing to perpetrate alleged trade abuses and intellectual property theft. China’s increasingly dictatorial leader, Xi Jinping, has responded in kind with similar tariff threats targeting the economic basis of much of the American Republican Party’s political roots (rural areas in particular). Earlier this month, the Trump administration sent an economic team to conduct trade negotiations, but they have since returned without any significant groundwork for future relations set in stone.

Although the United States has the advantage in its trade dispute with China, the two nations’ interests are set to butt into another as China’s economic power grows. Nevertheless, China and the United States have deeply interlinked economic fortunes, which will likely prevent any serious trade war from developing now. The longer China and the United States go without establishing a solid, mutually agreed-upon basis for sustained economic relations, the more China’s economic power relative to the United States will increase. As a result, it is in the Trump administration’s best interests to agree to terms with China right now—even if those terms do not fully accomplish Trump’s agenda. The United States’ negotiating position is not getting any better: the more China’s economy develops, the easier it will be for the Chinese to dictate trade terms.

China’s medium-term economic plans are outlined in its “Made in China 2025” strategy. Under the 2025 plan, China aims to become a thriving manufacturing economy as it transitions from labor-based industry to high-tech enterprises. China’s economic growth will continue to outpace that of the United States under this plan, and it will become the largest economy in the world in the next decade or so. This economic widening is deeply troubling for US policymakers because the United States’ military power is predicated on its economic power. If China can overtake the United States with its current strategy, then US military hegemony will become extremely vulnerable. This aspect of the 2025 plan helps to explain why the Trump administration is so unsatisfied with the current state of US-China trade.

Moreover, Trump’s administration views China’s means of fulfilling its 2025 goals as currently harming US economic interests, especially through intellectual property theft from US companies. Thus Trump’s protectionist trade policies directly threaten many industries that are central to the 2025 plan. The United States’ anxiety over China’s 2025 strategy and its means of implementing it are warranted, because the plan illustrates the threat that China’s economic power poses to US hegemony. China has responded in defense of its current economic trajectory, leaving the two countries in a public fight over the meaning of ‘fair trade.’ But although that might be the official characterization of the dispute on both sides, the future military and geopolitical implications of allowing China to rise unabated are always present in policymakers’ minds.

President Trump’s efforts to characterize the Chinese as manipulative economic competitors, despite his supposed friendliness with Xi, are continuous with his rhetoric on the campaign trail. His ‘America First’ slogan is rooted in the protectionist trade policies he has floated against China. But Chinese abuses are not the whole story. It is also true that multinational corporations (largely based in America) have taken advantage of China’s economic fertility by employing its rather impoverished workforce while securing exemptions from their domestic governments. China has more legitimate grievances than Trump’s administration would like to think, which has contributed to the general deadlock between the two.

In fact, Xi can hardly afford to back down in this trade standoff for domestic reasons anyway. After removing his own term limits and consolidating power to serve as dictator for life of China (should he so choose), Xi has fully committed himself to wielding Chinese nationalism to serve his economic and geopolitical priorities. Conceding to Trump risks making Xi and Chinese leadership appear politically weak and disingenuous in their claims about pursuing greater prosperity for China. On top of that, the United States does not truly have enough economic clout over China to force meaningful concessions, a reality that allows Xi to simultaneously maintain his publicly stubborn stance and caution against a trade war.

The best course of action for Xi is to wait out Trump’s tariff tirades and protectionist threats until the United States loses even more of the leverage it currently holds over China. The longer that supposedly amicable discussions take place between the Trump administration and Xi’s leadership on their trade issues, the better the prospects will be for more favorable future agreements for China—when the rising Asian power is will be closer to achieving its 2025 vision. The failure of Trump’s economic delegation to make any real headway in China implies that China’s stall tactics are currently at work.

For the moment, however, the United States still holds more leverage in this economic standoff than China. The United States more capable of disrupting China’s flow of trade than vice versa due to its military preeminence in the Asia-Pacific. The United States is always readily capable of increasing military pressure on China to help dictate economic and political outcomes (mostly through strategic naval movements in areas like the East China Sea), a constant reality that cannot be overlooked when discussing economic relations. Coercive maneuvers like these underpin much of the US-China relationship.

But Xi understands that the economic gap in the US-China rivalry is decreasing by the year (and the military gap will shrink, albeit more slowly, as a consequence). Having consolidated power in Beijing, Xi is fully able to keep China competitive over the long haul without provoking a drastic move by the Trump administration, which he will likely outlast anyway barring unforeseen circumstances (the 2025 plan, for what it’s worth, ends one year later than 2024, the last possible year of a Trump presidency). China’s ascension will inevitably run up against US interests in a very consequential showdown, whether during Trump’s presidency or after it.

The Trump administration, I think, has three realistic options right now to confront this situation, none of which are ideal. One is simply to maintain the status quo, which will play into Xi’s hands while forcing Trump to backtrack from his protectionist rhetoric. Another is to move forward with Trump’s proposed protectionist tariffs and embrace a full ‘America First’ economically risk-tolerant approach to combating China, which will probably lead to a trade war and damage America’s economy too. The last one is for the Trump administration to adjust its expectations of China in order to bring Xi to the bargaining table and compromise on a new framework for future trading relations. The United States will not see all its demands met, but it may also be able to lure China into agreeing to a more amenable basis for fair trade as soon as possible.

Unfortunately, there is no magic cure for the United States’ trade problems with China. China and the United States can hardly avoid remaining economic partners, by virtue of their relative share of economic power in the world and their trading activities with one another. Yet China’s geopolitical, economic and military rise is inevitable. In the present, the best the United States can do is to put itself in a position to most flexibly and adaptively confront that future when it arrives. Trump has shown some willingness as of late to embrace a collaborative rather than punishing course of action, which supports this take on the US-Chinese trading situation.

Reihan Salam of The Atlantic writes that “the forces pulling the U.S. and China apart are more powerful than those keeping them together.” The Trump administration ought to recognize that they might have to ‘lose’ the economic battle against Xi that they have laid out thus far in order to give future US policymakers a better opportunity of winning that war.

The image featured in this article is used under the Creative Commons license. The original can be found here.

Aman Tiku


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