While President Trump and Chinese President Xi Jinping meet to discuss their future together, experts are surmising what would be best for trade relations between the two nations.
“China’s systematic mercantilism is a threat to the U.S. economy and the very soul of the global trading system,” ITIF said. “America cannot respond with either flaccid appeasement or economic nationalism; it must assemble an international coalition that pressures China to stop rigging markets and start competing on fair terms.”
That China has a loose relationship with the rules of trade has been a gripe among U.S. leaders from multiple administrations, but according to ITIF—and President Trump—prior efforts have so far done little to effect change.
“Rather than reform, China has doubled down on its innovation-mercantilist strategies, seeking global dominance across a wide array of advanced industries that are key to U.S. economic and national security interests,” the report noted. “And despite the claims of some apologists for Chinese behavior, it’s clear what the end game is: Chinese-owned companies across a range of advanced industries gaining significant global market share at the expense of America, European, Japanese, and Korean competitors.”
What’s need instead of Trump’s so far nationalist rhetoric to handle trade issues with China, according to ITIF, is a new approach that both makes clear to China that they can’t carry on as is with impunity, and isn’t just based on individual tactics.
The U.S., however, should proceed with caution if it has hopes of success.
“The Chinese government is not without weapons, and it has demonstrated a strong willingness to use them to fight back against legitimate efforts to try to get it to stop manipulating the global trade system,” ITIF said. “And because of the lack of rule of law in China, the Chinese government could very well use its powers to capriciously punish U.S. firms producing or selling there. But doing nothing due to the fear of retaliation should not be an option.”
To get the trade relationship with China back on track, ITIF said the U.S. can’t take unilateral action.
“China is no longer as dependent on the United States economically, and thus our leverage acting alone is more limited. As such, any action toward China needs to be articulated through a strong and unified coalition, particularly with nations such as Australia, Canada, Germany, Japan, South Korea, the United Kingdom, and the European Union,” the report noted.
Trump and his administration must also work to differentiate between protectionism and prosecution, ITIF said. Enforcement of trade rules should be based on reining in China’s unfair advantages rather than simply to make the U.S. more competitive or protect certain groups from global competition.
Protectionism, ITIF said by way of example, is threatening to impose tariffs on Mexican imports when the trade surplus is modest and likely not a result of mercantilist Mexican policies. Blanket punitive trade taxes on goods from China—despite its mercantilist practices—could be considered prosecution.
Some, or “selective” prosecution, however, might be the right way forward, according to ITIF.
“The goal here is not permanent “protectionist” policies against China but rather an array of policies used as tools to pressure China into significantly reducing, and ultimately eliminating entirely, its use of mercantilist policies,” the report noted. “China should be rewarded when it plays by the rules and progress is visible, but be met with resolute action where it does not play by the rules. Blanket, punitive trade taxes against China will not prove productive; U.S. strategy in response to China’s mercantilism will have to be more nuanced.”
Engagements with China on trade should not be done “meeting-by-meeting,” the report said, but instead be results oriented. China should be held to specific goals, like reducing its current account surplus and reducing its forced technology transfer and IP theft, for starters.
“An approach that systematically addresses the fundamental problems is needed instead of contesting individual measures, because China innovation mercantilism has prove hydra-headed: For every one policy effectively countermanded, two more appear,” ITIF said.