Manufacture This

The blog of the Alliance for American Manufacturing

Back-to-back Senate hearings air the deep divide between China’s economic promises and actions.

China was the focus of two major hearings on Capitol Hill this week, as Trump administration officials and Members of Congress focused in on the country's flouting of trade deals and trade cheating.

United States Trade Representative Robert Lighthizer on Tuesday acknowledged the usefulness of the World Trade Organization (WTO) but said it needed to reform to remedy circumvention and exploitation of its rules by countries like China. James Talent, a member of the U.S.-China Economic Security Review Commission, echoed that sentiment before the Senate Foreign Relations Committee Wednesday

“The prevailing view [as China entered the World Trade Organization] was that full participation in the world economic system would change China in the right direction,” said Talent. “But I also think it’s fair to say that what actually happened was that China under the Chinese Communist party is changing the world trading system and is threatening the broader international order as well as the interests and security of the United States and its allies in the region.”

Talent is right. Though China’s entry into the WTO in 2001 was predicated on the expectation that China in response would liberalize its economy, the country’s trade cheating has persisted, with serious consequences for America.

Between 2001 and 2017, an estimated 3.4 million U.S. jobs were displaced by the trade deficit with China, according to the Economic Policy Institute. Since 2017, the deficit has only grown, hitting a record high in 2018. This reminder of trade inequity further amplifies impetus for the Trump administration to demand substantive change in China’s trading practices, including intellectual property theft, forced technology transfers and its raft of state subsidy programs.

Testifying before the committee, whose members expressed bipartisan concern that China abuses its position in the international trading system, Lighthizer asserted that a U.S.-China trade deal would demand structural changes to remedy this trade cheating.

“These real structural issues have to be addressed. And in our negotiations I would say they are being addressed, and they’re being addressed with precision. That is not to say that we’ve come to conclusion because we haven’t, but we’re making headway on there,” said Lighthizer. “We are going to have an enforceable agreement, or the president won’t agree to the agreement.”

Underscoring the danger of not responding to China’s trade cheating, U.S.-China experts attested to the threat China poses to the U.S. and the rest of the world if its abuse of the international trading system – part of its larger scheme to magnify its world power -- is not constrained, before the Senate Foreign Relations Committee.

Talent and Dr. Oriana Mastro, assistant professor of Security Studies at Georgetown University, both urged the cultivation of U.S. allies in efforts to stymie China’s trade cheating – something Lighthizer stated he was encouraging through trilateral talks on WTO reforms with the European Union and Japan.

Lighthizer also shared that he routinely provides updates on U.S.-China trade talks with the countries with the hope that they mirror U.S. actions and concerns. Nonetheless, he maintained that relying on WTO reform alone would fail to realize the desired changes in China’s behavior.  

“We do tell the EU and Japan when we meet what we’re doing and what the developments are and the like, but I think that it is a very serious problem. It’s one that we can’t just rely on the WTO for. We can’t just rely on this tri-lateral group. We have to act unilaterally to the extent we can,” said Lighthizer.

Undoubtedly, there’s much work ahead of Lighthizer as he grapples with leveling the playing field with China, which has persistently resisted complying with rules in the past.

As Sen. Robert Menendez (D-NJ) said during Wednesday’s hearing, “China is playing four-dimensional chess across every element of national security -- militarily, economically, diplomatically and culturally.” It’s up to the Trump administration to exercise foresight and extreme skepticism as it continues U.S.-China trade negotiations.

So when can we expect a U.S.-China trade deal, if there is one?

“Well, we’ll see …” said Lighthizer. “We’re either going to have a good result, or we’re going to have a bad result before too long. But I’m not setting a specific timeframe, and it’s not up to me. I’m working as hard as I can, and the president will tell me when the time is up or the Chinese will.”