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Now that he has China's attention, Trump can't settle for quick fixes

Now that he has China's attention, Trump can't settle for quick fixes
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It’s been hard to keep up with the escalating, tit-for-tat threats of tariffs between the United States and China over Beijing’s intellectual property and technology transfer practices. As to complicate things further, both sides are in public disagreement over whether they are in actual negotiations to resolve these issues.

At this point, is a negotiated solution possible? Yes, but the Trump administration will have to prioritize its objectives and package them into a coherent “ask” while being realistic about what China can, can’t and won’t do.

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To date, the administration has articulated varying objectives. First, it asked China for concrete proposals to bring down the bilateral trade deficit by $100 billion this year. Second, it asked China to stop unfair behavior in the technology sector.

 

Finally, it also seems to be asking for one-off concessions, including a reduction of China’s high tariff on American automobiles, and lower caps on foreign ownership of Chinese companies.

These three objectives are not necessarily in conflict, but right now it’s hard to tell what the administration really wants in order to put the tariff threats aside.

Having gotten China’s attention by threatening the imposition of around $150 billion in tariff increases, it would be a mistake to agree to a temporary solution that feels like a win but puts off addressing serious issues that are certain to resurface. 

Focusing on reducing the bilateral trade deficit by asking China to buy more U.S. goods is not the way to go. Yes, the deficit is too large and headed in the wrong direction. But asking China to import more from the U.S. this year is not a sustainable, long-term solution.

Even if China agrees to do so, the bilateral trade deficit may still continue to grow given factors that go way beyond trade policy, such as strong U.S. consumer demand. 

Instead, the U.S. should prioritize meaningful and structural change in Beijing’s way of doing business. This means negotiating a deal with China to halt unfair Chinese demands for U.S. technology, ensure that intellectual property rights are respected and enforced and create a level playing field in the advanced technology sectors where U.S. and Chinese companies are sure to compete without unfair government subsidization.

At the same time, the U.S. needs to be realistic about what it can achieve. It’s naive to expect Beijing, for example, to abandon its Made in China 2025 program, a cornerstone of President Xi Jinping’s economic vision, which calls for dominance in 10 advanced technology sectors.

But the U.S. can and should ask that Chinese policies be applied in a non-discriminatory manner and without creating global market distortions. This would mean, for example, limiting the types and levels of subsidies offered to emerging Chinese companies, while stopping illegal and coercive efforts to acquire foreign technology.

This will be tough to negotiate, and even if China were to make such commitments, there would be two serious compliance challenges. 

The first is transparency, or having the ability to know the scale and the types of subsidies China provides and plans to provide to emerging companies in these technology sectors. Our trading partners can be helpful by supporting the recent U.S. proposal to make sure all parties live up to their World Trade Organization subsidy notification obligations and be subject to penalties if they choose not to.

The second will be ensuring that China actually adheres to its commitments. The administration may wish to set certain benchmarks and a timetable to ensure that China is headed in the right direction. One way to ensure compliance would be to suspend U.S. tariff increases, while retaining the right to re-impose them should tangible progress not occur.

Alternatively, the U.S. could impose tariff increases on either a subset of the original list of products subject to tariffs or at a 10-percent level instead of the previously announced 25-percent level. The U.S. would then have the option to ratchet up the coverage or tariff level if China does not follow through on its commitments.

Given that full implementation will take time, the U.S. should also ask for “confidence building” measures from China that would be targeted, easily accomplishable and immediately implemented. Such measures could include unilateral Chinese tariff reductions in certain specified sectors, easing of licensing restrictions and quicker product approvals.

Finally, President TrumpDonald John TrumpMore than 300 military family members endorse Biden Five takeaways from the final Trump-Biden debate Biden: 'I would transition from the oil industry' MORE should designate a special envoy to travel to Asia, Europe and other corners of the world to explain our concerns about China’s intellectual property and technology policies, outline the U.S. strategy to address these concerns and seek input and support.

While many countries may be sympathetic to Washington’s concerns, they are also worried about U.S. unilateralism and want to avoid having to choose sides and being caught in the crosshairs of a potential trade war between the world’s two largest economies.

The administration has Beijing’s full-attention. Congress supports increasing the pressure on China. Other countries may be willing to back the administration to varying degrees. The time is right to get the China trade issue right with a long-term sustainable solution, rather than a temporary fix.

Wendy Cutler is the vice president and managing director of the Washington, D.C. office of the Asia Society Policy Institute, an organization that seeks to be a bridge in problem-solving within the region and between Asia and the wider world. Cutler served as acting deputy U.S. trade representative, working as chief  U.S. negotiator of the U.S.-Korea (KORUS) Free Trade Agreement.