THE U.S. isn’t the only country that has a chip on its shoulder about trade. When it comes to China, so do countless others.
For President Donald Trump, this could be an opportunity to lead a coalition against China’s predatory trade behavior. Instead, he is threatening trade war with the countries that would make up such a coalition, over commodities that are much less vital to the U.S.’s economy and national security than the sectors threatened by China’s expropriation of intellectual property.
This comes at a crucial time. President Xi Jinping’s recent elevation to de facto leader for life may have finally buried the doctrine, subscribed to by previous American presidents, that drawing China into the global economy would liberalize its economy and politics.
“Beijing has doubled down on its state capitalist model even as it has gotten richer,” Kurt Campbell and Ely Ratner, who both served in foreign-policy roles under former President Barack Obama, write in the current issue of Foreign Affairs. “Cooperative and voluntary mechanisms to pry open China’s economy have by and large failed.
When Mr. Trump took office he already possessed a visceral resentment of China due to its huge trade surplus with the U.S. Many of his foreign-policy and economic advisers consider the obsession with trade imbalances misplaced, yet agree China is a unique menace.
“Every year, competitors such as China steal U.S. intellectual property valued at hundreds of billions of dollars,” his national security strategy declared last December. “China is gaining a strategic foothold in Europe by expanding its unfair trade practices and investing in key industries, sensitive technologies, and infrastructure.”
In its annual economic report, Mr. Trump’s Council of Economic Advisers extolled free trade while singling out the harm to the U.S. from intellectual-property theft and economic espionage, which it puts at $227 billion to $599 billion a year. (By comparison, the total U.S. trade deficit in steel and aluminum is just $30 billion).
The report also noted the large number of disputes other countries have brought against China at the World Trade Organization as proof the U.S. isn’t alone.
But Mr. Trump has consistently rejected collective action in favor of going it alone. His officials downgraded multilateral efforts to reduce steel overcapacity. In January 2017, Mr. Obama’s administration launched a case at the WTO against China for subsidizing aluminum, but Mr. Trump has failed to follow up. Last week, Mr. Trump invoked a little-used 1962 statute to promise tariffs of 25% on imported steel and 10% on aluminum, ostensibly for national security, a factor that led his chief economic adviser, Gary Cohn, to announce his resignation Tuesday.
The Commerce Department, in arguing for the tariffs, acknowledged the U.S. is the victim of global excess capacity attributable to China, which is “unresponsive to market forces.” It noted that since 2003 China has four times promised to address overcapacity in steel production, as its actual capacity quadrupled to roughly half the world total. “The crisis confronting the U.S. aluminum industry is China, plain and simple,” one industry group told the department.
Yet China exports little steel to the U.S. because of existing duties and accounts for just 11% of its aluminum imports, far behind Canada. The Commerce Department argued for a global remedy because Chinese production depresses global prices and drives foreign producers out of third markets, and they then ship to the U.S.
This means the pain of Mr. Trump’s tariffs will fall not on China but on actors that play by the rules, including Canada, Japan and the European Union. When the EU threatened to retaliate, Mr. Trump said he would escalate by raising duties on European cars.
Chinese misbehavior has thus brought the U.S. to the brink of trade war with its own economic and strategic allies, echoing how Russian meddling has served to fuel internal strife in Europe and the U.S.
Some policy makers worry this makes global cooperation harder where the stakes are far higher: Chinese forced technology transfer, commercial espionage and intellectual-property theft, all aimed at creating Chinese champions in key industries by 2025.
These pose a far greater threat to U.S. technological leadership and the enormous value it adds to U.S. exports than do growing imports of steel and aluminum which, while vital to some communities, are commodities.
The U.S. is preparing a sweeping penalty against China, but it would be more effective if done jointly; otherwise, Beijing may simply persuade others to hand over their technology in exchange for Chinese sales or capital.
A coordinated response has worked before. In 2012, the U.S., EU and Japan launched a joint WTO complaint against China for restricting exports of “rare earths,” which are vital to many advanced technologies. In 2014, they won and China lifted its restrictions. One former U.S. trade official says the U.S. could create a similar united front against Chinese takeovers of technology companies: “That would get their attention.” Nor would it violate WTO rules, which are less restrictive on investment than tariffs, he said.
This would require the WTO to act more quickly than it typically does, and for other countries to stand up to potential Chinese blowback.
Most of all, though, it requires Mr. Trump to understand where leverage comes from.
“Chinese misbehavior with respect to intellectual property and economic espionage is a real problem that requires a response,” Patrick Toomey, a Republican senator from Pennsylvania, said in an interview. “We are much more likely to get our allies to work with us if we aren’t punishing them for selling us steel that our consumers want to buy.” - WSJ
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