openpolitics.com

President Trump, worried about economic and political fallout of trade conflict, may not demand China change its most problematic practices

Yet Mr. Trump may now be tempted to settle, like his predecessors, for less than ironclad commitments by China to structural change, though for different motivations: a higher stock market and happy farmers. Reportedly, China has yet to meet key U.S. demands to end forced technology transfer and other discriminatory practices. Yet Mr. Trump has waived the March 1 deadline and begun preparing for a summit with Mr. Xi.

Such a summit “cannot be allowed to fail,” says Brad Setser, who worked on China trade under Mr. Obama and is now with the Council on Foreign Relations. Andy Laperriere of broker Cornerstone Macro told clients this week: “It’s obvious Trump wants a deal, and the standard for what he considers a good deal continues to get lower.”

This undermines U.S. Trade Representative Robert Lighthizer’s leverage, which rests on a readiness to walk away and carry out threatened tariff increases.

Ironically, Mr. Lighthizer is an authority on past presidents’ failures to change China. “We are told that the United States needs China’s help on a range of geopolitical issues,” he testified to a Congressional panel in 2010 as a private attorney. But this would simply let China’s misbehavior “continue indefinitely; there will always be some type of crisis where we could use China’s assistance.”

The U.S. should not have forsworn unilateral trade laws in favor of the WTO, he said, which is “simply not designed to deal with a legal and political system so at odds with the basic premises on which the WTO was founded.”

Mr. Lighthizer has angered U.S. allies for sidelining the WTO and hitting them with tariffs on steel, aluminum and, possibly, cars. Still, even critics admit he has gotten China’s attention—and roiled the markets—in a way prior administrations haven’t. China’s economy has clearly suffered in response: Manufacturing activity and exports have slowed sharply in recent months.

China has reportedly agreed to buy more American soybeans and natural gas, strengthen intellectual property protection and increase foreign access to some sectors such as finance. However, it may have done most of that anyway.

Groups such as the Business Roundtable and the U.S. Chamber of Commerce have a long list of what a genuine deal would include, such as the

• lifting of foreign investment restrictions and
• requirements to store data locally. Additionally, China would grant
• licenses to foreign companies without a Chinese partner and
• repeal central and local government preferences for domestic suppliers in strategic sectors. Further, cybersecurity regulators
• wouldn’t require the disclosure of source code;
• an independent arbitrator would hear intellectual property disputes, with the WTO receiving appeals; and China would
• publicize all subsidies to state-owned enterprises, as required by the WTO.

.. Mr. Xi may never agree to such steps if he believes they infringe on Chinese sovereignty or undercut its economic aspirations. He may also bet that if the U.S. won’t do business with China, others will. Indeed, Huawei’s global market share is growing, according to Dell’Oro Group, even as the U.S. presses allies to boycott it.

And if he settles for something less? It would have been better to have done nothing, says Scott Kennedy, a China expert at the Center for Strategic and International Studies: “We wouldn’t have damaged relationships with our allies or created volatility in the markets for two years.”