International

A modest proposal for solving the US-China trade standoff

President Donald Trump is (seemingly) making progress in his efforts to force the U.S.'s major trading partners to lower their tariffs and trade barriers - except for China. A stalemate has put those negotiations in doubt and markets in turmoil. Meanwhile, the president is threatening to impose even more tariffs on China. 

But there is a way that China could recapture the initiative - President Xi Jinping should propose the same deal Trump has offered to other U.S. trading partners. 

Trump is correct when he accuses other countries of imposing higher tariffs on the U.S. than we do on them. The World Trade Organization, which has developed a "simple average applied most favored nation tariff" for each country, confirms Trump's claim. The WTO says the U.S. has an average tariff of 3.48 percent, while Canada is at 4.08 percent and Mexico 7.01 percent. The European Union is 5.16 percent and China 9.92 percent.

Trump wants other countries to lower their tariffs, making U.S. exports more affordable to foreign businesses and consumers. He believes that change would reduce the U.S. trade deficit - and it might, though most economists believe it would have only a marginal effect. 

Last June Trump went so far as to suggest that the G-7 nations eliminate all tariffs and trade barriers.

The G-7 countries seemed to dismiss his suggestion at the time - and many people still believe it isn't a serious proposal. 

But in Trump's July 25 meeting with European Commission President Jean-Claude Juncker, they jointly announced the goal of moving to zero tariffs and trade barriers between the U.S. and E.U. Both markets and industries gave a huge sigh of relief.

Xi, or his surrogates, should approach Trump with the same proposal: zero tariffs and trade barriers between the world's two largest economies.

The idea isn't alien to China. The WTO says that Chinese Hong Kong is already at zero tariffs. And neighboring Singapore imposes almost no tariffs. So not only can it be done, it is being done unilaterally by part of China.

Such an agreement would have its critics, primarily from those industries that have grown rich and well connected from trade protectionism.

But the transition to zero tariffs doesn't have to take place immediately. Just as the U.S.-E.U. agreement identifies a goal and starts a process, Xi should suggest phasing out all tariffs and trade barriers over a period of, say, three to five years. That gives both countries time to work through the economics and, more importantly, the politics.

Would Trump take such an offer if China made it?

He has claimed repeatedly, both publicly and privately, that he is a free trader; he just wants fair trade. It's hard to get freer and fairer than zero tariffs.

Of course, eliminating tariffs and trade barriers between the U.S. and China still leaves the sticky issues of intellectual property theft, forced tech transfer, overt or covert government subsidies of favored industries, and possible currency manipulation. Chinese officials strongly deny many of those allegations, or at least that the government is behind them.

However, U.S. trade experts, companies involved in China, and scholars are virtually unanimous that those problems occur to varying degrees. Addressing them will also take time. First things first, start with tariffs.

A commitment by Trump and Xi to begin eliminating tariffs and reducing trade barriers would be a major step forward for both countries - and the global economy.

Trump has said that's where he wants to be. Xi should give him the opportunity to prove it. 

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.

Outbrain
View desktop version