World Views | US and China need to compromise on trade, and soon

The next round of U.S. tariffs on Chinese imports — USD200 billion worth — could come as soon as this week, after talks to avert them ended without resolution. China is set to retaliate promptly with duties on nearly everything it imports from the United States. Even as he signaled an initial deal with Mexico, President Donald Trump declared it wasn’t time to restart negotiations with China; administration hardliners appear to believe that the Chinese economy is more fragile than it looks, increasing U.S. leverage. For their part, Chinese negotiators seem resigned to wait until after the U.S. midterm elections before pushing for new talks.

Both sides should instead climb down while they still can.

China’s apparent nonchalance suggests it still wants an easy way out of this conflict. Its negotiators have reportedly offered to buy more U.S. commodities — to bring down the bilateral trade deficit — and to refrain from devaluing China’s currency to boost exports. But these moves would not address the main issue: China’s failure to live up to its World Trade Organization obligations, especially in the way it bolsters its own high-tech sector through massive subsidies and by forcing foreign companies to transfer technology.

China continues to insist it’s a developing nation that should be allowed scope to build up infant industries, even as it deflects pressure to open up cloud computing and other technologies by citing national-security concerns. And now worldwide anger at Trump’s trade bluster seems to have persuaded Chinese leaders that they have global opinion on their side.

They’re wrong. U.S. concerns about China’s trade barriers, discrimination against foreign companies, and attempts to procure technology by any means are well-founded and widely shared. By ignoring or downplaying them, or taking half-measures to address them, China has already lost credibility internationally.

China’s reluctance to reform runs counter to its long- term interests as well. It’s pushed to the breaking point the multilateral trading system that has enabled the country’s remarkable four-decade expansion — at a time when its economy is at risk of stalling before the country can break out of middle-income status. Meanwhile, the subsidies and market barriers associated with its “Made in China 2025” industrial plan are as likely to encourage fraud, inefficiency and waste as they are to generate innovation. China could foster greater competition and attract more investment by establishing a level playing field.

For its part, the Trump administration could best meet its own desire for improved trade by giving China room to adjust course. Chinese officials are justifiably confused about who speaks for the White House in trade talks. The good-cop-bad-cop routine that till now has balanced a more conciliatory Treasury department against hardliners in the U.S. Trade Representative’s office has exhausted whatever negotiating value it may have once had. If the U.S. wants to extract reforms from China, it needs a set of clear, focused, consistent and reasonable demands, paired with firm enforcement mechanisms. It also needs to reestablish trust that the U.S. government will stand by any deal, despite Trump’s shifting whims.

For the U.S. to drag out matters in an effort to bring the Chinese economy to its knees would be foolhardy. Leave aside the fact that any Chinese slowdown would hammer global growth and hence the U.S. economy. If the U.S. backs Chinese President Xi Jinping into a corner, its leverage will only diminish. Xi, who has promised to restore China to its rightful place at the center of the global economy, can’t afford to be publicly bested by Trump. At a certain point, compromise will for him become impossible, regardless of what that means for China’s gross national product.

Trump should be seeking concessions from China, not total capitulation. As he himself has said about how to succeed in negotiating any deal: “You can’t be too greedy.” The Editors, Bloomberg