Trump must seek ‘win-win’ trade policy with China

President-elect Trump’s trade policy and approach to China will have a different character than those of past administrations. While we still don’t know the new president’s overall China policy, talk of a 35 percent to 45 percent tariff on Chinese goods, labeling China as a currency manipulator, and taking a phone call from Taiwan’s president are all bold signals. Should we be worried about a U.S.-China trade conflict?  

Let’s first consider the Chinese view. Any examination of U.S.-China trade issues must begin with an understanding of the basic principles of mutual respect and “win-win cooperation” that have guided the diplomatic relationship since President Nixon’s visit.

The 1972 Shanghai Communiqué stated, “both sides view bilateral trade as another area from which mutual benefit can be derived, and agreed that economic relations based on equality and mutual benefit are in the interest of the peoples of the two countries.” 

Vice Premier Wang Yang echoed this at a luncheon during the Joint Commission on Commerce and Trade (JCCT) on Nov. 22 in Washington, D.C. when he described relations and business cooperation as being positive, “so long as both sides stay true to the principle of no-conflict and no-confrontation, mutual respect and win-win cooperation.” 

Win-win is inherently a two-way street. For China, World Trade Organization (WTO) membership and trade relations with the United States have been essential parts of an economic success story unparalleled in history.

Over the last four decades, we have seen major wins for China, American businesses and consumers. American manufacturing workers have been losing, however, particularly in the key rust belt states of Pennsylvania, Michigan, Wisconsin, and Ohio.

While the causes are more complicated, many of the voters in those states are convinced that international trade agreements have been made at the expense of American manufacturing jobs. President-elect Trump is determined to keep faith with his supporters, stating, “the era of economic surrender is over.”  

This will be easier said than done. China is now the largest trading partner of the United States, just ahead of Canada and well ahead of Mexico. Our economies are interdependent but the trading relationship has long been unbalanced.  Through September 2016, the United States had a trade deficit in goods with China of $257 billion, importing approximately $337 billion from China, while exporting about $80 billion.

In comparison, for the same period, the U.S. goods trade deficit with Canada was only about $6 billion on total trade of $407 billion and $47 billion with Mexico on total trade of $391 billion. Much of the deficit comes from U.S. imports of goods made by Chinese state-owned enterprises (SOE’s) or enterprises that have been subsidized in various ways by Chinese government or provincial governments. 

In the 2016 Report to Congress, the U.S.-China Economic and Security Review Commission stated that, “China continues to dump its massive overcapacity in U.S. and other global markets, materially damaging U.S. industries, including steel.” The report identifies that China’s economic reform agenda has stalled and concludes that SOE’s continue to be used by the Chinese government as a tool to the detriment of U.S. and foreign competitors. 

The report criticizes China for its import substitution policies, forced technology transfers, cyber theft of intellectual property, obstruction of the free flow of information and commerce, and restrictions on foreign investment. 

The new president can use existing mechanisms to fight against unfair trading practices. He can negotiate via stronger use of two bilateral fora – the JCCT and the broader Strategic and Economic Dialogue. The two fora have made progress, though it’s been excruciatingly slow.

Trump can also speed up U.S. trade remedies. Under U.S. anti-dumping and countervailing duty laws, U.S. industries may petition the government for relief from imports that are sold here at less than fair value or that benefit from foreign government subsidies. 

If the Trump administration concludes these mechanisms are insufficient, a recent study by the Peterson Institute found that the new president would have significant authority under various statutes to impose some tariffs or quotas on imports from China. Of course, any such action by the new administration would immediately result in retaliatory action by China.

The Chinese response to Chinese tire safeguards in 2009 is an example of retaliation. After President Obama imposed a safeguard of 3-year tariffs on Chinese tire imports, China retaliated by initiating anti-dumping and countervailing duty investigations on imports of U.S. chicken and automotive products. 

The Peterson study warns against the risk of triggering, “an escalatory cycle of retaliation that could prove difficult or impossible to wind down once set in train.”  Retaliation could involve overt Chinese actions to limit purchases of U.S. aircraft and business services and curb imports of agricultural products, like soybeans. 

A trade dispute might also trigger economic nationalism and Chinese boycotts of American brands such as McDonalds, Pizza Hut, Buick or Apple. In 2012, during tension over islands in the East China Sea, Japanese brands in China were subject to boycotts. The big losers in an escalation scenario would be consumers and businesses in both countries. 

This kind of lose-lose trade conflict must be avoided. The President-elect has stated that, “we are going to compete in the world where it’s a two-way road, not a one-way road.” We can hope that he and China both take a careful, two-way road in its truest sense.

This is also a critical time for China to offer ideas and concrete action. There is an opportunity for China to engage in innovative, positive diplomacy for mutual benefit and mutual respect. Perhaps the next Strategic and Economic Dialogue will offer the opportunity for a great deal for both sides.

Charles J. Skuba is Professor of the Practice in International Business and Marketing at Georgetown University’s McDonough School of Business. He previously served as an official in the International Trade Administration under President George W. Bush.

The views expressed by contributors are their own and not the views of The Hill.