Trump got it all wrong on China

China has threatened to retaliate against escalating tariffs by restricting exports of rare earth minerals to the U.S. The serious damage this would cause illustrates how much leverage China has gained from Donald Trump’s misguided strategy.

His obsession with tariffs, manifest in his latest threat to Mexico, is beside the point. Trump has already gifted nearly all trade relationships in the Pacific Rim to China by abandoning the Transpacific Partnership (TPP). 

TPP would have been a multilateral trade agreement among the U.S., seven Pacific Rim countries, Canada, Mexico, Peru and Chile. When Trump left it, the other parties pressed ahead and formed their own successor trade agreement without the U.S. or China, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). China is exploring joining it, and with good reason. It could mean $298 billion in additional income by 2030 and more than a 50 percent increase in trade with CPTPP member states.

Although China was never a party to it, TPP had nearly everything Trump wants from China and would have been a powerful negotiating tool for him to get Chinese concessions. It contained broad intellectual property protections, including criminal and civil penalties for trade secret and cyber theft by state-owned enterprises and the private sector, and eliminated 18,000 tariffs on made-in-America exports including on every type of American-manufactured and most agricultural products. These tariffs continue to drive prices up by as much as 59 percent for U.S. autos and 40 percent for U.S. poultry. TPP also provided for stronger labor standards in Asia, and environmental protections that would have put state-owned enterprises on a level playing field with U.S. businesses, particularly small businesses that make up 98 percent of U.S. exporters.

But after Trump abandoned it, CPTPP suspended many of TPP’s intellectual property protections. The few CPTPP retains would require China to reform its practices before joining the agreement. But so far, China hasn’t joined, and continues to commit IP theft with impunity. Trump has chosen to attack the problem ineffectively with a tariff strategy that hurts American companies and consumers, when he could have dealt with it effectively through TPP.

Trump says he would rejoin TPP if it were made “substantially better.” But improving on TPP would be nearly impossible. It would require agreement among all eleven TPP countries to readmit the U.S., and then to introduce other provisions Trump thinks would make it “better,” though it’s unclear what those might be. Trump probably never even knew what was in TPP in the first place (a good bet for a man who doesn’t read).

As things stand now, Trump’s penchant for upending trade agreements and his isolationist “America First” policy have left China free to bully its neighbors in violation of international law. Trump’s approach has also eroded confidence among Southeast Asian countries that the region is a priority for the U.S., or that the U.S. would defend them against Chinese aggression.

China has pirated Southeast Asian countries’ Hague-backed sovereign drilling rights in the South China Sea, threatening military action if they don’t stop drilling there. The Philippines (one of America’s strongest allies) and Vietnam retreated, lamenting that they could not rely on Trump to come to their aid, as they relied on the Obama administration. Acting Defense Secretary Patrick Shanahan recently acknowledged China’s “coercion,” but suggested open dialogue instead of confrontation.

In general, Trump’s failed tariff strategy, his isolationist stance and his failure to slow China’s Belt and Road Initiative (BRI) have cleared the way for China to expand its economic, commercial and political clout throughout the world, weakening U.S. leverage. BRI could create the world’s largest economic bloc, into which the U.S. would be forced to integrate. The U.S. is readying about $60 billion in investments to compete with BRI, but it’s too late to undo the progress China has already made, and too far short of the $1.2 trillion to $1.4 trillion China will invest by 2027. 

Meanwhile, China is expanding its trade relationships with EU countries, which worry that a U.S.-Chinese trade deal will leave them at a disadvantage. This could limit U.S. trade options in Europe. Italy became the first Group of Seven member to enlist in BRI. France and China signed aerospace, energy, shipping and financing contracts worth $45 billion, while President Macron pursues more trade and investment reciprocity with China.

The U.S. cannot solve trade deficits, IP theft, state subsidies and cyber intrusions with tariffs or negotiations. It must confront these challenges with a massive effort to compete with China on the world stage for economic, trade, commercial, political and military relationships. This requires a full reversal of Trump’s misguided “America First” policy.

Congress must also reassert its Constitutional authority to approve tariffs set by the president for national security reasons — a power Trump has shamelessly and blatantly abused. The House of Representatives must investigate and expose the true impact of Trump’s foreign policy to inform voters of the damage he’s doing to America’s global standing. Trump’s base, which Congressional Republicans rely on to get reelected, must be disabused of the false notion that Trump’s policies are advancing U.S. interests. Only then will Republicans in Congress be free to do what’s best for America.

Otherwise, while Trump obsesses over tariffs and “America First,” China will continue to spread its tentacles throughout 70 countries and across four continents. As Council on Foreign Relations senior fellow Ely Ratner warns, the U.S. is losing its geopolitical battle with China: “Many foreign policy achievements over the last 75 years will be lost… and will take generations (at least) to revive.” 

Neil Baron advised the SEC and congressional staff on rating agency reform. He represented Standard & Poor’s from 1968 to 1989, was Vice Chairman and General Counsel of Fitch Ratings from 1989 to 1998. He also served on the board of Assured Guaranty for a decade.

Tags Belt and Road initiative China Donald Trump Donald Trump Economic policy of Donald Trump Patrick Shanahan Trans-Pacific Partnership

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