With a Trump/Kim Jong Un summit now in question, attention has quickly shifted to China and the Trump Trade Team's efforts to secure a trade "win." As with most of the breaking foreign policy challenges of late - Iran and the nuclear deal, NAFTA, potential U.S. tariffs on European steel and aluminum - the deepening trade tensions with China have a resonant, 2016 campaign ring.
- But a major problem with the White House trade team's efforts to secure a "win" is that Washington's team is badly divided. Secretaries Steve Mnuchin and Wilbur Ross want a quick deal on deficits, to calm markets; U.S. Trade Representative Robert Lighthizer and White Trade Policy Director Peter Navarro are pressing for systemic changes in China's trade-distorting subsidies - actions, amongst others, that will take years, if ever, to achieve.
- China's team, by contrast, is unified; and it's headed by Vice Premier Liu He, a western educated (Master’s degree from Harvard), savvy politician and negotiator.
- Further, unlike the White House, China's team and its president, Xi Jingping, have kept a low profile on trade objectives and tactics; this has led some (like the American Chambers of Commerce in China) to speculate that there is confusion in Chinese trade ranks; there isn't. Despite personnel turnover announced at the recent National People's Congress, China is plowing ahead with its state-directed, industrial policy to dominate markets for 21st-century technologies.
The Trump Administration is right that there are serious, growing, and legitimate challenges on a range of Chinese trade practices especially concerns over forced technology transfer and IP theft. But the president and his team have reversed themselves so many times in the last the 10 days on China trade that it’s virtually impossible to divine a coherent U.S. strategy. The ZTE tweets are the best and most frustrating example – a Chinese telecom company that has been a serial abuser of U.S. sanctions laws was offered an escape by the president, apparently concerned at the loss of Chinese jobs. Why? Help from Xi on North Korea? As we have just seen, Trump/Kim relations have soured since the ZTE reversal. And, the decision roiled Trump's base – including the AFL-CIO and UAW leadership.
What makes the deepening trade friction especially worrisome at this point is the simultaneous worsening of bilateral security concerns: the increasingly obvious militarization of disputed islands in the South China Sea, despite Chinese pledges to avoid such moves; Secretary Jim Mattis disinviting the Chinese to Pacific theater naval exercises in response; and reports of Chinese sonic attacks on a U.S. counselor employee in Guangzhou. On top of a crazy trade week, the smiles from the Mar-a-Lago "chocolate cake" summit in 2017 now seem to belong in a distant century.
BOTTOM LINE: there is NO confusion on what China wants from its economic dialogue with the U.S.: maintenance of its industrial policy, enshrined in the "Made in Chine 2025" manifesto, with no departure from a well-articulated, cohesive economic strategy. And the goals of that strategy envision nothing less than the displacement of the U.S. as the predominant power in the western Pacific over the near term; and by 2049 (the 100th anniversary of the founding of the PRC), to reach parity with the U.S. as a “fully developed” economy.
- Incomprehensible Tweets and inconsistent public pronouncements by the White House on the U.S. trade relationship with this rising power, if not corrected, will only facilitate attainment of the PRC’s strategic objectives by separating us from key friends and allies who, for decades, have trusted and respected U.S. leadership.
