Excerpt: “Stumo sees China as an economic predator, if not on the level of the Soviet Union quite yet, then at least headed there.”
The trade talks may end. But the trade war will never die.
[Matt Petterson | May 7, 2019 | The Atlantic]
Robert Lighthizer, the U.S. trade representative, is no one’s idea of an optimist. He and Treasury Secretary Steven Mnuchin have been leading trade talks with China for the past several months and Lighthizer has been careful to point out there’s no guarantee of success. “If there’s a great deal to be gotten, we’ll get it —if not, we’ll find another plan,” Lighthizer told NPR recently. That’s a lot of ifs for the most important economic relationship in the world.
Pessimism won the day on Monday when Lighthizer and Mnuchin announcedthat the U.S. would execute President Donald Trump’s recent threat to raise tariffs on China once again. The punitive action in the midst of a negotiation was a departure from Trump’s generally optimistic tone about the talks, but it was a return to form for Lighthizer, an experienced negotiator with a reputation for brinksmanship. China, he believes, poses a grave danger to Americans’ way of life. Talks with China have been something of a moonshot for Lighthizer; an agreement that closes off vectors of illegitimate influence is difficult but, if a deal is reached, extremely valuable. And so despite the additional tariffs, the U.S. is not walking away from the talks yet, the negotiators said Monday. Chinese negotiators will arrive Thursday for more talks. But if the negotiations do fall through, Washington has already taken steps to ensure that China doesn’t get the upper hand.
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The China talks have a few main goals, according to Lighthizer’s public statements and media reports. They aim to reverse the decades-long build-up of global supply chains in China, which has made the country the destination of choice for businesses like Apple that manufacture and assemble high-tech products. The U.S. negotiators also want to put an end to a Chinese campaign to steal American know-how. They want to limit the support the Chinese government gives to the local private sector. And, critical to Trump, the talks seek to engage China to buy massive amounts of U.S. goods, including potentially soybeans and semiconductors. To get China to change its ways, the U.S. has imposed a series of escalating tariffs that now cover $250 billion worth of Chinese imports, out of a total of roughly $550 billion in annual imports from China. Most of those tariffs have been set at 10 percent; unless a last-minute agreement preempts the new policy, those rates will all rise to 25 percent on Friday. (Trump has said that China bears the cost of the tariffs. Studies have found that in practice American consumers bear the brunt.) The president can unilaterally impose tariffs under U.S. trade law, but doing so may violate America’s commitments at the World Trade Organization, where China has lodged a complaint.)
The trouble with the administration’s plans is that China doesn’t really want to do most of the things America wants it to, other than buying U.S. goods. (China was buying lots of American soybeans until Trump imposed his tariffs; Beijing switched to Brazil and other suppliers as punishment.) The Chinese Communist Party stays in power by giving its people an ever-growing promise of a better life. Changes to the country’s economic model are no small thing, especially when they’re demanded by outsiders. That means the United States needs to radically change the cost-benefit analysis of the party, and even billions of dollars worth of tariffs may not be enough to make that happen, although they do seem to be slowing Chinese economic growth.
Just how far China will go is a mystery that won’t be resolved unless a deal is struck. A Chinese delegation led by Vice Premier Liu Hie is still planning to travel to Washington later this week, though it has limited its schedule. The immediate sticking point, according to The New York Times, came after the U.S. team insisted that the substance of the deal be thoroughly enacted in Chinese law—no mean feat in an opaque, autocratic system. The durability of Chinese agreements is a long-running point of contention. “U.S.-China trade agreements have often had the staying power of the dew on a summer’s rose,” wrote Mark Cohen, a former Patent Office attache at the U.S. Embassy in Beijing.
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The difficulty of this task appears to be what drew Lighthizer into the administration in the first place. He was headed for a comfortable semi-retirement, Dan DiMicco, a former steel CEO who put Lighthizer’s name forward during the transition, told me last year. Lighthizer has long seen China’s economic overtures to be a kind of Trojan horse. “Its leaders view economics the same way they view defense, foreign policy or human rights. It is a means of expanding the power of the state and maintaining control of its population,” Lighthizer wrote in a 1999 essay inveighing against President Bill Clinton’s plan to bring China into the WTO, through which it could trade with the West on more-favorable terms. “We have all the leverage in the world if only we are willing to use it,” he wrote a few years later. Using that leverage against China became Lighthizer’s personal and professional mission. Now that the China talks have hit a low point, the question to ask is whether a man who spent decades preparing for this moment is unprepared for it.
A crucial moment for the talks came in April, when Mnuchin said that the U.S. and China had “pretty much agreed” to create a mechanism to enforce the deal. That announcement aimed to resolve a lingering problem. The U.S. wants the deal to effect real changes. But why would China ever agree to let the United States punish it unilaterally? The answer, as Mnuchin explained: both sides would agree to let the other police the deal. The trouble with that plan is that it cuts against everything Lighthizer and his hawkish allies believe about America’s role in the global economy. In their telling, China has been plundering the American economy since at least its entry into the WTO in 2001. Letting China monitor the U.S. would be something of an insult to the American workers the negotiators say they’re defending. “Nothing known about the Trump administration’s enforcement strategy should give anyone confidence that satisfactory enforcement is possible,” wrote the economist Alan Tonelson in April. “Decades of experience should by now have clearly taught the lesson that, at least under the present Chinese regime, mutually beneficial economic ties were never possible.”
Read: China and America may be forging a new economic order
Lighthizer may well have convinced Trump to act out a bluff as a way of forcing concessions. But even if he isn’t, and the talks really are in trouble, the U.S. has already taken steps to limit its perceived vulnerabilities to China. It has sent a loud message that companies with Chinese supply chains need to consider their business strategies. The iPhone supplier Foxconn is building plants outside China, the Financial Times reports. The administration’s still-unratified NAFTA replacement deal includes a provision limiting Mexico and Canada’s ability to do deals with China. And speaking of Mexico, business is booming because of the trade war. After the U.S. put tariffs on silk yarn from China, Mexico’s exports to the U.S. jumped up from “almost nothing” as China’s fell, Bloomberg reports. Congress has newly empowered a national-security committee, known as CFIUS, that vets incoming investment into the U.S. As a result, “as many as a dozen China-linked firms have scaled back their US investment programs, some dramatically,” reports Recode. The United States has also enforced a legal blockade on the WTO, refusing to allow the appointment of new appellate judges who might find against American interests.
Those moves are at best neutral for American businesses—many are directly negative—but since they also hurt China, they count as a win for those who believe Chinese economic growth can threaten American supremacy. “We didn’t allow the Soviet Union to grow off of our markets and challenge us,” Michael Stumo, CEO of the Coalition for a Prosperous America, told me. His group advocates for U.S.-based businesses and positions itself against the free-trading Chamber of Commerce. Stumo sees China as an economic predator, if not on the level of the Soviet Union quite yet, then at least headed there. He supports the administration’s trade policy, but would rather have no deal with China than a bad one. And even if the talks fail, something useful has come of it. “I suspect the achievement was bringing together the more hawkish and the more dovish within the administration, who got firsthand experience with dealing with the slow-walk game of China,” Stumo said.
Trump’s election in 2016 coincided with political changes in China that have made many Americans fearful. The trade team has drafted off that sentiment as it pursues a deal. “Hang tough on China,” Senate Minority Leader Chuck Schumer tweeted at the president Sunday. Schumer knows which way the wind is blowing. Former Vice President Joe Biden said last week that China is “not competition for us.” His opponents pounced. “Within 24 hours, Biden’s remarks had been reshaped into a kind of gaffe,” wrote reporter Dave Weigel in The Washington Post. Even if talks collapse, Stumo sees the change in tone as a win.
Read: Things weren’t always this bad between the U.S. and China
China-watchers have noticed a change in tone outside of Washington. “One indication how much China has changed is that the people who know China best—the China scholars—have turned so negative on China,” Susan Shirk, chair of the 21st Century China Center at the University of California, San Diego, told me. She wrote a dissent last year to a lengthy report about the danger of Chinese influence operations in the United States, as The Washington Postreported. “I think we’re going about this competition by becoming more like China rather than a better version of ourselves,” Shirk said.
Lighthizer’s office didn’t respond to a request for comment on this story. Commentators have speculated that his reputation would fall if the deal collapsed. But his career as a negotiator within and outside the administration suggests a different reading. If any hawk can wring concessions from China, it’s Lighthizer. Failure of the China talks would prove no one can do it, because China is fundamentally at odds with the U.S. That shift would set up a new dynamic with China: a relationship in which the hawks feel unbound to do what they deem necessary to protect the United States. And for a lifelong pessimist like Lighthizer, that might be something to smile about.
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