International Trade and Global Business

 

Why We Need a Comprehensive Trade Deal

It has been a busy time in Washington D.C with things China trade.  As the clock ticks down on the President’s threat to push tariffs on many Chinese goods to 25 percent on March 1, there’s renewed urgency to make a deal.

High-level Chinese officials were in town in early February, but statements on results were details-free. We know only that talks were positive and frank.  Some observers thought it significant both sides agreed that results should be verifiable.  In other words, there will be defined outcomes and if they don’t happen, tariffs slapped off will be slapped on. This adds uncertainty for the Chinese, but it may also provide incentive to really change behavior this time. Some people in and outside the administration worry the US will cave by way of agreeing to a purchase of agriculture and other products from the US, while refusing other demands that China end the requirement of obligatory tech transfer, curbs on market access and failure to protect IP, among other things.

The complexity of issues beyond that of how best to reduce the US trade deficit with China—they buy a lot less of our stuff that we buy of theirs—suggests any agreements will take a very long time to implement, certainly beyond the end of the current administration.  These realities might tempt US negotiators to focus on the political sugar high of a mega US goods purchase by China.  That would be a mistake.

Running parallel to the structural and punitive tariff story is the story of national security.  Sales to and investments by the Chinese—sometimes involving China’s homegrown national champions, such as Huawei—are seen by some observers as examples of an existential threat to the western world. China’s 2025 plan seeks world leadership in technology related to driverless cars, super computers, artificial intelligence, and more.  Leadership is not the same as dominance, but that distinction has become blurred in the minds of national security people and others who are calling for more restrictions and possibly sanctions. In fact, it’s expected that the President will soon issue an executive order banning Chinese telecommunications parts from use in US networks.
What’s not clear is whether it’s all Chinese-made components or just Huawei’s.  Since Huawei makes most of them anyway, it may be a moot point.  What’s not yet clear is how, or whether, the Chinese will respond. Taken to an extreme, trade could become more complex and burdensome over the next few years as governments rush to restrict an array of transactions on national security grounds.  Products that were considered purely commercial in the past might become subject to export controls, slowing down or reducing world trade.
We hope that doesn’t happen.  But trade between the US and China, and the U and China, is bound to get more complicated in the months ahead.

Have the Chinese of overplayed their hand? Maybe.  But you have to them credit for having a strong hand to play.  They’ve become innovators in a relatively short time. We need a comprehensive trade deal based on international norms, such as those developed by the WTO. Humanity’s biggest problems such as climate change, pandemics, and economic development need the resources and cooperation of China and the US. Time frittered away fighting costly trade wars mean the real existential threats don’t get the attention our collective survival requires.
 

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