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Trump is asking China to redo just about everything with its economy

libadmin May 5, 2018
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The Trump administration has finally presented the Chinese government with a clear list of trade demands. It’s long and intense (there are eight sections), and President Trump isn’t just asking Chinese President Xi Jinping for a few modifications. He’s asking Xi to completely change his plans to turn the Chinese economy into a tech powerhouse.

The demands include the following:
• China will cut the $336 billion U.S.-China trade deficit by at least $200 billion by 2020, a 60 percent reduction.
• China will stop subsidizing tech companies.
• China will cease stealing U.S. intellectual property.
• China will cut its tariffs on U.S. goods by 2020.
• China will not retaliate against the United States (including against U.S. farmers).
• The Chinese government will open China to more U.S. investment.

The Chinese have reacted as you might expect — by balking. The official Chinese statement after the talks between top U.S. officials led by Treasury Secretary Steven Mnuchin and top Chinese officials was that “big differences” remain. That’s diplomatic speak for, “We’re far from any deal.”

What does Trump really want?

The cynical way to read this is that Trump doesn’t want a deal with the Chinese. Instead, he’s asking for impossible demands to justify putting tariffs on China when the talks fall apart.

But there’s reason to believe this is just an opener to see how Xi reacts — that the list is meant to alarm the Chinese government but is probably not the final deal Trump and his team have in mind. Trump asked for a $100 billion reduction in the trade deficit with China only a few weeks ago. Now he’s asking for a $200 billion reduction. It could be the time-honored negotiating technique of initially asking for much more than what you’ll settle for in the end.

“We’re only in the phony-trade-war stage,” said Mark Williams, chief Asia economist at Capital Economics. “Neither economy will be brought to their knees by this.”

It’s significant that the Trump administration spelled out its demands to the Chinese. One of the biggest criticisms of Trump’s approach to China was that there weren’t clear goals. Even the Wall Street Journal editorial board, which has embraced much of Trump’s economic agenda, criticized the president Thursday: “The Trump Administration hasn’t decided what it wants out of a deal, and that increases the risks of a larger breakdown between the world’s largest economies.”

Now that the list is released, there’s at least a starting point.

Trump seems to be winning public opinion on trade

Public opinion appears to be shifting Trump’s way on trade. A majority of Americans (54 percent) say they are confident Trump can negotiate favorable trade deals with other countries, according to a new poll from Pew Research. It’s the issue on which Trump polls best — by far.

Trump also appears to be winning over many executives and politicians on the China issue, at least to an extent.

The belief in Washington for decades was that more trade with China would be a win-win, but Trump has forced both parties to rethink that conclusion. As John Pomfret, a longtime journalist in China, chronicles in his new book “The Beautiful Country and the Middle Kingdom: America and China, 1776 to the Present,” the old thinking was that more trade would cause the Chinese to become more capitalist and democratic. That’s not what happened.

Now there’s broader sentiment that China is a bad actor on trade and must be forced to change. Many across the political spectrum are cheering Trump on to get the Chinese to lower barriers to its markets for U.S. companies and stop stealing intellectual property.

“Both parties think the Chinese don’t play fair,” said Greg Valliere, chief strategist at Horizon Investments. “There’s widespread agreement the Chinese have brazenly stolen a lot of our technology and a lot of our movies and books and more.”

Where Trump might be going wrong

But Trump still faces a lot of opposition in two areas: tariffs and trade deficits.

U.S. farmers, especially soybeans and ginseng growers, are already taking a hit in some parts of the country. After Trump put tariffs on Chinese steel and aluminum, Xi responded by putting tariffs on some U.S. crops that are widely sold in China. The situation could quickly escalate into a deeper skirmish — or even a trade war — with more farmers and even manufacturers getting hurt.

“There may be a little pain for [a] little while,” Trump told the tens of thousands of attendees at his Michigan rally last week.

Trump’s “take one for the team” argument is unlikely to go down well the longer the trade fight carries on and more middle-class Americans get squeezed.

“His threats of broader tariff wars will harm the very constituencies he has vowed to help,” said Jennifer Harris, a member of President Barack Obama’s National Intelligence Council who pushed for the United States to take a tougher line against China.

Similarly, many think Trump’s obsession with the trade deficit is a) misplaced and b) keeping him from focusing on what really matters: the tech and intellectual-property debate with China. As many economists have tried to explain to Trump, the only way to really bring down the U.S. trade deficit is for Americans — and the U.S. government — to stop spending so much and start saving.

If Americans don’t stop consuming, then the United States is just going to end up buying TVs from Vietnam instead of China if Trump insists the Chinese stop sending so much stuff here. It might “fix” the trade deficit with China on paper, but it’s highly unlikely to fix the United States’ deficit overall.

Trump has put the spotlight on China’s trade abuses, and many now agree with him that China is a strong-enough economy to start playing by global rules a lot more. But his opening list of demands is lengthy and seemingly unrealistic.

It’s remains unclear how far Trump is willing to go to change Xi’s mind.

“Everybody agrees there is a problem with China,” said Evan Medeiros, who leads the Asia practice at the Eurasia Group. “There should be a way to come up with a strategy reflecting that consensus that gets real progress. That hasn’t happened to date.”

Correction: An earlier version of this post stated that Harris was on Obama’s National Security Council. She was part of the National Intelligence Council.

Related:

The Trump administration is fumbling steel tariffs

Why farmers only get 7.8 cents of every dollar Americans spend on food

In a U.S.-China trade war, who has more to lose?

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