Plan B for the trade war with China

Plan B for the trade war with China
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The recent thaw in trade talks with China is unlikely to resolve Western complaints about the global consequences of its economic system. Stalemate is more likely than real progress, and that advantages the ambitions of President Xi for China to accomplish wider geopolitical influence, especially in slowing down growth in the West.

European central bankers and mainstream politicians, who champion multilateralism and the World Trade Organization, blame the tariffs of President TrumpDonald John TrumpGOP senators balk at lengthy impeachment trial Warren goes local in race to build 2020 movement 2020 Democrats make play for veterans' votes MORE for flagging growth in Europe. However, their economies were failing under the weight of misguided monetary policies and conservative fiscal policies before Trump arrived on the scene.

In trade negotiations, Washington seeks a fundamental reform of Chinese approaches to economic development such as high import barriers, forced technology transfers from foreign companies doing business in China, and industrial espionage. But through successful rounds of negotiations with President Bush, President Obama, and President Trump, it has been unyielding. China will liberalize only at a pace that suits its own purposes, and merely offers to buy more American agricultural commodities and energy products and disingenuous promises to better honor intellectual property rights. The tariffs may hurt Chinese consumers, but Xi has objectives that are global rather than domestic.

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Armed with an undervalued currency, China amasses dollars it uses to aid authoritarian governments in the Philippines and Venezuela, build global influence through its Belt and Road initiative such as having its navy take over a Cambodian base originally partially financed by the United States, and fracture European unity. Rome and Beijing recently signed a memorandum of understanding for $2.8 billion in investment projects.

Tariffs will not crack all this, but they are steps to encourage rather than command Western multinational corporations to relocate supply chains outside of China, mostly to locations in Southeast Asia that potentially offer better access to American and European exports. This requires cooperation from allies similarly threatened by Chinese ambitions, but have great allegiance to the World Trade Organization, other multilateral institutions, and established European deals.

Antagonizing our allies with threats of tariffs and advocating ruinous policies like reengaging Russia while it continues mischief in the Ukraine, Middle East, and anywhere else President Putin can project his large but second rate military is foolish. Our policies should be clear, simple, and consistent. China is the target. Let the Europeans solve Brexit and similar separatist sentiments expressed by the leading political party in Italy, but be prepared to negotiate free trade with the United Kingdom after it reaches terms of separation from Brussels.

Make the case that admitting China to the World Trade Organization was indeed a mistake. The international body is a club of democratic market economies. Beijing has no intention of becoming either, or playing nice, so bump it out. The United States should limit purchases from China to the value of our sales there by auctioning import licenses equal to the value of our exports. American businesses say some Chinese products are essential to their supply chains, but most are not and an auction system would allocate the right to import to those firms with the highest need.

Limiting trade with China to the essentials would curtail funds available for its Belt and Road influence peddling and increasingly threatening projection of military power. As carrots to European and Asian nations, reenergize efforts to accomplish a free trade agreement with the European Union, complete the trade deal with Japan, and petition to reenter the Trans Pacific Partnership, a free trade club that includes Canada, Mexico, Japan, and other trading nations in Southeast Asia.

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During the transition in 2018, the trade team persuaded President Trump that bilateral deals should take precedence over multilateral initiatives. That only works if China is isolationist, which it is not. The European Union China Bilateral Investment Agreement will come into force in 2020, and Beijing is negotiating the Regional Comprehensive Economic Partnership with more than a dozen Asian and Pacific nations. Through these deals and its Belt and Road initiative, China is diversifying and expanding its export markets away from the United States.

Tariffs are not enough. President Xi is stalling until he gets a Democrat in the White House, while the pugnacious posture of President Trump is alienating friends and isolating not China but the United States instead.

Peter Morici is an economist and professor at the University of Maryland.