By Zhao Minghao Source: China-US Focus Published: 2019-9-30
The vice ministerial-level trade talks between China and the United States have concluded in Washington, making necessary preparations for the high-level talks to be held in the coming weeks. A statement by the Office of the U.S. Trade Representative described the talks as “productive,” but concerns are growing about the prospects of the larger trade negotiations.
Before the start of the talks, U.S. officials were said to have discussed the possibility of reaching an interim trade deal with China. It was proposed, for the first time, to delay or even abolish extra tariffs on Chinese goods in exchange for promises from the Chinese side on intellectual property rights and purchases of U.S. farm produce. However, President Donald Trump said he did not want an interim deal.
The tough stance of the U.S. has made it difficult for the Chinese side to implement goodwill gestures. Originally, China planned to send a delegation to visit the U.S. farm states of Montana and Nebraska, and the US Department of Agriculture made preparations for the visit. It’s obvious that China intends to buy large amounts of U.S. farm goods, as the trade war has dealt a heavy blow to U.S. soybean growers and farmers generally. However, the planned visits were eventually cancelled. The reason, to a great extent, was that the U.S. side failed to respond positively to China’s goodwill gestures.
Henry Kissinger now and then offered advice to the Trump administration on its China policy. In his memoir, he recounted that in the early 1970s, the U.S. and China sought re-approchement through a series of diplomatic minuets, or dances, and discovered the path of mutual compromise. President Trump and his core advisers should spend some time studying such cases, and should come to realize that it’s not feasible to force China to accept all US demands through a trade deal alone.
Easing tensions by means of an interim trade deal would be beneficial both to the U.S. economy and the Trump administration. Although Trump has claimed time and again that China wants a deal badly, the U.S. probably needs a truce more urgently than China does.
The White House should squarely face up to the harms to the U.S. economy brought by the trade war. According to the latest survey by the Business Roundtable, a corporate association set up in 1972, members forecast that the U.S. economy would grow 2.3 percent in 2019, lower than the 2.6 percent forecast in the first quarter this year. With regard to the impact of the trade war over the past year on the companies, more than 50 percent said sales had been negatively affected. According to survey findings by AmCham Shanghai, which were released on Sept. 11, of the 333 members, 75 percent expressed opposition to the tariff war — higher than the 69 percent from a year earlier. The Trump administration has stressed that concerns about forced technology transfers must be addressed, but only 4.4 percent of the members said this was the most pressing issue they are facing.
At the same time, U.S. employment and consumer pocketbooks were also hit hard by the ongoing trade war. According to a UBS survey, trade frictions between the world’s two largest economies are having a growing impact on jobs in the U.S. In August, U.S. employment figures were lower than expected, and the number of companies intending to increase recruitment, compared with the previous quarter, dropped from 46 percent to 25 percent, while the percentage of companies with layoff plans was 40 percent higher than in July. And if the trade war continues, 15 percent of enterprises will further scale down their investments, the survey found. As Myron Brilliant, executive vice president of the U.S. Chamber of Commerce, has said, Trump applied the wrong strategy to deal with what he described as China’s unfair trade practices. It is estimated that by the end of this year, punitive tariffs will cost the average American family an additional $600 to $1,000 in living expenses.
In fact, the U.S. business community has opposed the tariff war. Led by the National Foreign Trade Council, 23 American business groups, including the National Retail Federation and the Association of Global Automakers, recently formed the Tariff Reform Coalition to urge Congress to wrest back greater control over trade policy and increase its oversight of the president’s use of tariffs. National Foreign Trade Council President Rufus Yerxa said, “Not since the 1930s has our country relied so heavily on tariffs in an attempt to pick winners in the U.S. market, while overlooking the broader consequences for other industries and our economy as a whole.”
Further, moves by the Trump administration to suppress Chinese companies like Huawei Technologies have also met with opposition. The Semiconductor Industry Association recently wrote to Commerce Secretary Wilbur Ross, urging the administration to make good on its promise to ease the ban on sales to Huawei. According to the letter, Huawei is the third-largest buyer globally of U.S. semiconductors and does not represent a threat to U.S. national security with its “nonsensitive products.” Delays in awarding the special licenses could weaken the U.S. semiconductor industry, because it will lead to lower profits, forcing some companies to cut research and eroding their dominance in the global market.
No doubt, the trade war has become an important topic that will have a bearing on the 2020 presidential election. With the rising number of American voters feeling pessimistic about the economic outlook, it’s not good news for the White House. Democratic contenders such as Joe Biden, Kamala Harris and Elizabeth Warren, during recent campaign activities, all questioned Trump’s trade policy. They criticized Trump for his uncertainty and flip-flops in his handling of trade, and said his over-reliance on tariffs is unwise. According to a Washington Post report, approval for Trump among registered voters has declined from 47 percent in July to 40 percent, and he trails Biden and other Democratic candidates.
It should not be ignored that the Republicans have begun to show worries about an escalating China-U.S. trade war, fearing that it could cost them control of the White House and the Senate in voting next year. Senator Pat Toomey, Republican of Pennsylvania, said, “There’s no question that trade uncertainty is contributing to the slowdown.” Many Republicans are accusing White House trade adviser Peter Navarro of creating uncertainty and instability in the American economy with the trade war he has been preaching. They believe American voters are losing patience as they are forced to bear further losses or damage from the trade war. The Republicans have advised the Trump administration to show more flexibility on China.
Without a doubt, when the U.S. and China ease the tensions in bilateral trade and economic relations by dancing and minuet with one another, it will be exactly what the world is hoping for. The International Monetary Fund stated on Sept 12 that the mutual imposition of punitive tariffs by China and the U.S. could probably reduce global economic production by 0.8 percent in 2020 — more pessimistic than the 0.5 percent it had previously predicted.
It should be noted that the negative impact of China-U.S. trade frictions has begun to spread from the manufacturing industry to the service sector. According to a recent report by the World Trade Organization, the service trade sector — including finance, science, technology, tourism and transportation — showed signs of a slowdown in the first quarter of this year, and this will be a further drag the growth of the global economy.
Vice Premier Liu He is scheduled to lead a Chinese delegation to Washington, D.C., for trade talks in October. The Trump administration should give the interim trade deal concept serious thought, and then seek better approaches to solve the structural issues in an environment of eased bilateral relations. China will never give in to American pressure, but it is also fully prepared to respond any goodwill gestures with goodwill moves of its own. The two sides should dance a minuet to further reduce misjudgments and narrow differences, expanding the ground of common interests to adapt to the new state of competitive coexistence.
Zhao Minghao is a visiting fellow at the Chongyang Institute for Financial Studies at Renmin University of China.