Manufacture This

The blog of the Alliance for American Manufacturing

If a trade war has been averted, what kind of peace is this?

Originally published in the New York Times.

Donald Trump is squandering the best chance the United States has had in years to remake the bilateral trade relationship with China.

It’s a remarkable turn of events. During the presidential campaign, Mr. Trump promised that, if elected, he would bring wholesale change to what he called a “totally unfair” trading relationship.

That hasn’t happened. Instead, a Chinese trade delegation left Washington on May 19 without agreeing to any of the structural market reforms, such as an end to subsidies for advanced technology companies, that Trump administration officials were seeking. Treasury Secretary Steven Mnuchin walked back threatened tariffs, and the president himself inexplicably introduced the idea of resuscitating ZTE, the Chinese telecom giant that faced a crippling United States export ban after violating American embargoes against Iran and North Korea.

With the tariffs removed, what did the Chinese side offer? The purchase of more American agriculture and energy products, which they would have done anyway, and lower tariffs on auto imports, a concession they had already agreed to weeks ago.

By May 20, the Chinese state media had announced that the trade war was off, and Secretary Mnuchin confirmed it on a Sunday morning talk show. The president then retired to Twitter to defend these results as a great win for American agriculture exports, as if that was the point all along.

If a trade war has been averted, what kind of peace is this? Chinese officials didn’t concede to anything of substance. Mr. Trump has often said China is “laughing at us.” After this round of negotiations, China must be laughing directly at him.

As well it should. It’s not clear who’s in charge on the American side, or what its negotiating goals are. After a few days of growing bipartisan criticism, the president tweeted that while he was pleased with the negotiations, the result, at most, will be “a different structure” to this trade arrangement, rather than the dramatic change he promised.

Where does that leave the United States, and all those still hoping for actual reform?

The United States should start by shedding its old pretensions. To begin with, the country can no longer claim to have leverage over China on intellectual property theft.

Even if the president was fixated on the size of the American trade deficit in goods, intellectual property was supposed to be the key point for his negotiators to address. The issue has been brewing for decades, and neither the Bush nor the Obama administrations did enough to force China to stop it. So far, neither has Trump’s. Instead, it surrendered their best leverage quickly by shelving its tariff threat.

America can also no longer pretend more trade with China will promote a political or economic opening. Xi Jinping is now China’s president for life, and his country’s markets are nearly as opaque as they were in 2001, when Beijing joined the World Trade Organization.

What we do know about China’s economy is that it remains heavily dependent on government subsidies, dominated by state-owned enterprises, and its manufacturing sector operates at extraordinary levels of overcapacity. Huge swaths of China’s economy, like its financial and construction sectors, remain closed to foreign investment despite promises to open. And while the Chinese economy grows, largely because of its own propulsion, it has been helped along significantly by rampant intellectual property theft encouraged by the state.

The United States should also acknowledge that preserving its trade relationship with China has compromised American values. It isn’t just the millions of Americans workers who still haven’t fully recovered from the shock of their industries’ exposure to the Chinese import wave. More insidious are the concessions made every day by companies to the demands of the Chinese government, under threat of losing Chinese market access.

With those hard truths in mind, the United States should finally acknowledge the true task before its negotiators. It isn’t how to bend China to America’s advantage; it’s how to manage the relationship with China so the American economy will not be left at a permanent disadvantage.

The Chinese government has a cleareyed view of what it wants: to dominate the industries of the future, including artificial intelligence, robotics and advanced vehicles. Its leaders are clearly willing to use exclusionary policies to get there. What is Mr. Trump prepared to do to stop them, much less responsibly plan to do for our industrial future?

The president, an erstwhile boxing promoter who has made much of his ability to negotiate, should know not to leave his jaw hanging out there in the early rounds of a fight. But he did. If his ego has been damaged enough to see these talks for the disappointment they are, perhaps that will move him to show more resolve as the fight goes on.

But if Mr. Trump doesn’t act now, it could be many years before the United States is again in position to challenge China. By then, it may be too late. Any potential gains to the American economy will already have been conceded to Chinese pre-eminence. Let’s hope he can pull himself off the ropes in time.

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