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Trump Has No Intention of Making a Trade Deal With China

 
 

August’s brief round of U.S.-China trade negotiations ended with little progress. That was no surprise; before starting negotiations, both sides had already voiced low expectations. The lack of progress, the typical argument goes, is because the Trump administration fundamentally misunderstands modern China. If Beijing were to accept Washington’s parochial and unyielding trade demands, it risks outraging the Chinese people. This would undermine President Xi Jinping’s authority and the Chinese Communist Party’s legitimacy and potentially force China to endure a another “great humiliation” by the West. All this would portend the end of China’s “great rejuvenation.” For the CCP, these are red lines that cannot be crossed.

The U.S. negotiation strategy is confounding. Negotiations imply compromise, yet the United States’ demands are uncompromising. As Phil Levy, senior fellow on the global economy at the Chicago Council on Global Affairs, explains, “The Chinese have made attempts and they keep making them, but they keep getting rejected. I don’t think this White House has put together a set of coherent demands that the Chinese could conceivably meet.” In a similar line, David Loevinger, previously the Treasury Department’s senior coordinator for China, said, “It’s still kind of unclear what it would take for the U.S. to get to yes on a trade deal.”

What is clear is that unless the United States changes its position, there is no deal in sight. We assume Trump, who claims himself a master dealmaker, intends to make a deal. Yet this conflicts with the administration’s hardline demands, which make a deal impossible. Perhaps it’s time to consider the alternative — that Trump has no intention of making a deal with China.

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Trump has consistently made good on his campaign promise for an “America First” economic foreign policy. His administration has implemented steel and aluminum tariffs, threatened to break up NAFTA and tariff European cars, and started a trade war with China. This opening of multiple economic fronts gives the impression that Trump has no coherent strategy. What is the advantage of opening so many fronts at once? How does the Trump administration plan to negotiate multiple trade disputes simultaneously?

One conceivable explanation is that the president is testing the policy waters. Trump’s base demands an “America First” foreign policy. Their cult-like following ensures that any protectionist policies will garner their support. But Trump is a populist, and like any populist leader, he seeks the praise and loyalty of others — the more the better. Therefore, he naturally desires praise and support beyond his base.

Trump is constrained, however, by his “America First” agenda; finding protectionist policies that appeal across the political spectrum is undoubtedly hard. The simultaneous opening of economic fronts may be a strategy of testing the waters. By attacking multiple targets followed by taking a “wait and see” approach, Trump can identify which target attracts the most support. He can then capitalize on whatever “sticks” while eschewing or resolving the rest of the disputes.

This appears to be the case. The Trump administration mentions the aluminum and steel tariffs less and less often. The NAFTA negotiations are making constructive progress — while challenges remain, lawmakers are optimistic about concluding the negations in the coming months. Trump’s threat to tariff EU car imports met with bipartisan criticism, causing him to backtrack.  The EU and United States now intend to work toward a bilateral arrangement of “zero tariffs” and “zero subsidies.” Only the trade war with China has “stuck,” finding broad appeal.

The president’s shoot-from-the-hip foreign policy has exposed his sensitivity toward bipartisan criticism. Trump consistently backtracks on his statements when lambasted by both Republican and Democrat lawmakers. Besides the EU spat, Trump suffered vocal bipartisan criticism for the separation of children from their parents at the U.S.-Mexico border, the joint statement with Vladimir Putin at the U.S.-Russia summit, his denial of Russian meddling in U.S. elections, and his failure to admonish white supremacists after the violence in Charlottesville, Virginia in August 2017. In each instance, Trump de-escalated the situation by publicly correcting earlier statements while providing appeasing new ones.

The consistent need to assuage bipartisan criticism tells us that these are situations where the president will stop catering to his base and instead meet (albeit halfway) the demands of conventional lawmakers. The inverse of this suggests that Trump would highly value and pursue any agenda that gains the bipartisan support of lawmakers while still retaining his base. So far, only one policy agenda has consistently achieved this: the U.S.-China trade war.

Following the White House’s official announcement in March of its intention to place tariffs on Chinese goods, both Republicans and Democrats praised Trump’s moves against China. The Senate’s leading Democrat, Minority Leader Chuck Schumer, who typically blasts Trump’s policies, praised Trump for the announcement in a Senate floor speech. Schumer said, “Today he is doing the right thing,” accusing China of “rapaciously” taking advantage of the United States. “Trump is exactly right this afternoon to propose a plan to punish China for its most flagrant trade abuses,” Schumer continued, arguing that China “has stolen and extorted the intellectual property for years without repercussion.” Schumer concluded that “Democrats, Republicans, Americans of every political ideology, of every region in the country should support these actions.”

Meanwhile, House Republican Kevin Brady provided an archetype Republican response, saying, “President Trump is right to take a hard line against China’s dishonest trade practices, which have clearly harmed American workers.” In sum, both parties largely approve of the president’s intention to tariff Chinese goods and prevent the Chinese acquisition of U.S. intellectual property.

Since the March announcement, trade tensions have steadily escalated — and Trump continues to find overwhelming bipartisan support. In July, the Foreign Investment Risk Review Modernization Act (FIRRMA), which expands the powers of the Committee on Foreign Investment in the United States (CFIUS), a government agency that reviews potential foreign investments on national security grounds, passed by a vote of 400-2 in the House and 85-10 in the Senate. FIRRMA, a joint effort between the White House and Congress, is widely acknowledged as a response to China’s increasing investment in U.S. strategic industries. CFIUS’ expanded powers will further hinder Chinese investment in industries such as artificial intelligence and semiconductor production, thereby limiting the technology transfer China needs to meet its “Made in China 2025” goals of achieving technological superiority.

With China, Trump has found a regular source of praise and support which spans the political spectrum. This consistent and lucrative stream of political capital begs the question: What are Trump’s incentives to make a deal to end the trade war?

One argument is that he may seek a deal to avoid damaging the U.S. economy. However, with the U.S. stock market at a record high, unemployment at 3.9 percent, and GDP growing at 4.1 percent — plus the president’s ignorance toward the risks posed by an overheating economy — this seems unlikely. In addition, the Trump administration consistently states a willingness to suffer short-term economic pain for long-term gains. Another argument is that by concluding the trade war, Trump can claim a big victory. But in maintaining the dispute, he can claim regular victories across a longer period. This would provide a welcome distraction from the scandals that continually dog his presidency.

There is a real chance that Trump’s ostensible desire for a deal with China is a lie. If the trade war ends, the president sacrifices a cash cow of political capital. On the other hand, drawing out the dispute and leaving any deal-making until after the 2020 election could prove an effective re-election strategy. The strategy would involve a gradual escalation of protectionist policy measures, which is exactly what we have seen so far.

The escalation of tariffs has been gradual. A 25 percent tariff on $50 billion of Chinese goods was announced on March 22. The tariffs were later broken into two smaller rounds: tariffs on $34 billion of Chinese exports were implemented on July 6, and the remaining $16 billion was implemented on August 23. From announcement to realization, the $50 billion in tariffs took five months. At this rate of escalation, the trade war will indeed be a long one.

Currently, Trump’s administration is drawing up plans to tariff another $200 billion in Chinese goods. The duty will be between 10 percent to 25 percent. How this tariff comes into effect will shed light on whether Trump intends to make a deal. If the tariff is relatively low at 10 percent, then there is room for a drawn-out escalation to 25 percent (or higher). This is also true if the $200 billion, like the first $50 billion, is broken down and gradually doled out as smaller tariffs. However, if the $200 billion is implemented in full at 25 percent, then Trump may be gunning for a deal. Decision makers must be cognizant towards the unfolding of either scenario.

To conclude, there’s a significant chance that the president has no intention of making a deal. This is a scenario that nations must heed, particularly those in East Asia. East Asia is a deeply integrated regional production network, with China as its platform for final assembly and export. Therefore, any tariffs that hurt China’s growth will hurt the entire region’s growth. To address this threat, East Asian nations can hedge their bets by planning and preparing for a worsening and protracted U.S.-China trade war.

There are also domestic consequences for America, besides the economic ones usually trumpeted in the media. By targeting China, Trump has broadened the domestic support for his toxic brand of economic nationalism. It now appeals across the political spectrum. His talent as a populist must not be underestimated.

Kyle M. Griffin is a graduate student at National Chengchi University, Taiwan. His research focuses on the International Political Economy of the Asia-Pacific.

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