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Trade & Investment

Donald Trump should cancel China trade deal and raise tariffs

Xi Jinping

Xi Jinping

President Trump said last week that it may be better to wait until after his reelection to complete a trade deal with China.

As a scheduled increase in tariffs on China approaches on December 15, Trump should stick with this instinct: he doesn’t need a deal and shouldn’t throw a lifeline to the Chinese Communist Party while it is floundering.

It is increasingly clear that China has reneged on what it agreed in October for a “Phase 1” partial trade deal, just as it reneged on an earlier deal last May.

Beijing promised to buy $50 billion worth of U.S. agricultural goods. But from the moment of the agreement, it was walked back that pledge, implying it will spend much less.

Beijing agreed to protect U.S. intellectual property and threw in a handout for Wall Street by promising easier access to the Chinese market—a joke they have played for at least two centuries on visiting barbarians who imagine they can access China’s large population.

China did promulgate a new law that led a spokesman to declare, “Beijing will not discriminate between domestic and foreign enterprises when enforcing its [intellectual property] laws.” This is also amusing to those who know history, since China doesn’t protect domestic intellectual property either. Also, Beijing has broken many similar promises before, and the law in China isn’t even a speed bump to the one-party government doing whatever it pleases.

Indeed, a Chinese scholar recently noted that Beijing has approved 336 reform measures in past years, but he observed, “they are not well-implemented.” In other words, the government puts on a show about reform and then cheats.

Beijing insists that any concessions, such as they are, won’t begin without the prior removal of tariffs implemented by the Trump administration. But that simply was not what was agreed in October.  Beijing is trying to turn back the clock to before the trade war with make-believe concessions.

Furthermore the concept of a “Phase 1” trade deal was already a concession to China—effectively a skinny deal advocated by Treasury Secretary Steve Mnuchin in lieu of the comprehensive reform in China that Trump has long sought.

It won’t address most of the “seven deadly sins” of Chinese trade misconduct, which, beyond intellectual property theft, include forced technology transfers in joint ventures, exporting deadly fentanyl to America, cyber attacks, currency manipulation, dumping goods to put U.S. companies out of business, and subsidizing Chinese state-owned enterprises.

One other important factor has changed since October: the U.S. economy, whose stunning growth since Trump’s election was needlessly slowed by Federal Reserve incompetence, has begun to roar again. GDP growth in the third quarter was recently revised upward, and unemployment is lower than it has been in 50 years. Wages are growing faster than at any time during the Obama years, and growth is higher still for the middle class.

Meanwhile, China’s communist economy is sputtering. Trump has forever shattered the illusion that America couldn’t get tough with China on trade because we were somehow beholden to them and vulnerable. The opposite is true.

The trade war has compounded other economic problems in China and contributed to a noticeable downturn. Notwithstanding fake official numbers, GDP growth is probably near zero, debt is out of control, and food prices have spiked.

On top of economic problems, Beijing has also run into political trouble because of its heavy-handedness in Hong Kong, where protesters remind the world what Chinese who have some freedom think of Beijing’s tyranny. The crisis there furthermore raises doubts about Chairman Xi Jinping’s judgment, political stability in the rest of China, and whether a spasm isn’t coming within the ruling Communist Party as bad news compounds.

Put simply, the USA does not need a trade deal with China, and now would be an unfortunate time to throw a lifeline to the Chinese government.

Furthermore, given his strengthening political position, Trump himself doesn’t need a deal, and China would be more willing to make a meaningful pact after it is stunned by his increasingly likely reelection. Delaying an agreement until at least 2021 would bring medium-term clarity and certainty to U.S. tariff levels and trade policy, which in turn would benefit U.S. businesses by making planning easier.

In the meantime, the pending U.S.-Mexico-Canada Trade Agreement that will replace NAFTA accounts for twice the trade volume and five times the American exports of any deal with China. Furthermore, the new U.S.-Japan trade agreement that Trump negotiated takes effect on January 1. It will be a major boon to U.S. farmers and ranchers who can export more thanks to reduced tariffs from Japan.

Trump isn’t just beating China economically, he is transcending it as a new economic and political world order emerges at this transformational period of time. He should tell Beijing and its duplicitous negotiators to take a hike.

Christian Whiton was a senior advisor in the Donald Trump and George W. Bush administrations.  He is a senior fellow for strategy and public diplomacy at the Center for the National Interest and the author of “Smart Power: Between Diplomacy and War.”

Source: Fox News – Christian Whiton: Trump should cancel China trade deal (and raise tariffs) — Here’s why

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