trade war

Will the Trade War With China Be Permanent?

The best of frenemies. Photo: Thomas Peter/Getty Images

America’s trade battle with China may — may — at last be easing. But even if President Trump loses in 2020, it’s unlikely that the relationship between the two countries will go back to the way it was anytime soon. I spoke with business columnist Josh Barro about what to expect in the years ahead.

Ben: The White House and China recently announced that they had agreed on a preliminary phase-one deal, which seems to mostly mean that they’ll stop upping the trade-war ante, for now. There’s a long way to go toward actually settling the core issues that drove the two countries apart in the first place — and even if Trump loses next year, the problems many American lawmakers have with China — that it steals intellectual property, that its barriers to its own markets are too steep, that it takes advantage of WTO rules — are unlikely to have been addressed fully. Even post this presidency, will trade antagonism with China become a permanent feature of American government?

Josh: Yes, but it was a long time coming. Remember, Mitt Romney ran for president in 2012 on a promise to label China a currency manipulator. The specifics have changed since then (China no longer artificially weakens its currency) but there is a growing recognition that China’s unfair practices have been causing real harm to the U.S. economy and workers. And though I don’t think future presidents are likely to adopt Trump’s tariff strategy, I do think increased economic tension between the U.S. and China is likely to outlive his presidency.

Ben: But presumably you think Trump pushed it in a more extreme direction, with the tariffs and rhetoric.

Josh: I think he increased the salience of the issue. But I also think he’s somewhat squandered an opportunity. He hasn’t really known what to ask for. Chinese promises to buy lots of soybeans (flexible promises in any case) don’t do a lot to fix underlying issues in the relationship.

Ben: What would have been a smarter approach that might have yielded better, more tangible results?

Josh: For one thing, I think Trump should have embraced the TPP instead of withdrawing from it. As Trump has antagonized other Asian powers, he’s created openings for China to form deeper links with them. We’ve seen this recently with South Korea. If we had a united front with those countries in trade negotiations, we’d be better able to position China where it would feel a need to open its markets. But Trump is essentially allergic to multilateralism.

I also think it’s important to find a way to increase the salience of pro-Western consumer views on multinational companies. We see U.S.-based firms parroting the Chinese line on issues like Taiwan and Hong Kong because the Chinese government cares deeply, and Chinese consumers also care, whereas U.S. consumers do not care. This is an area where Trump’s megaphone could be useful. But he has been oddly reluctant to demagogue the issue even when it involved the NBA. And I think that’s because promoting Western values isn’t important for him. He just wants to sell soybeans.

Ben: Let’s say a moderate Democrat wins next year — someone like Joe Biden. How would you expect them to approach China initially? Do you think the tariff war would come to an immediate end? Will Trump’s tough approach actually help from a negotiating perspective, in that America has already demonstrated it can be rather extreme when it needs to be?

Josh: I suspect the next president would try to get something in exchange for rolling back the tariffs instead of doing so unilaterally. (Similar to what Trump has intermittently tried in Afghanistan — even if you want to withdraw anyway, you might as well try to get something for it.) But the Chinese have shown in these negotiations their reluctance to give much, except for rollback of retaliatory tariffs or resumption of canceled purchases that were responses to the tariffs to begin with. And because there is a (modest) economic boost to be had from ending the tariffs, I think they’d find their way to a deal even if it didn’t do much. I also think Biden would try to resurrect the TPP under a different name with slightly different terms. It was Obama’s baby, and Democrats only moved to oppose it because of pressure from Bernie.

But I think you could see a significantly tariff-oriented posture toward China from a farther left president. I also think it’s possible that rising outrage over matters like the treatment of Muslims in Xinjiang or of protesters in Hong Kong could make business as usual with China harder. But it’s a hard problem. China is much richer than it used to be and better able to rely on its internal market. So I think the reason these issues have persisted through many administrations is we don’t always have great options to pressure them.

Ben: Right now, both China and the U.S. are doing okay, economically speaking. How would a major downturn here or there affect the overall state of play?

Josh: I wouldn’t say China is doing that well. Its growth has slowed down markedly. Chinese government economic data is not reliable; officially, growth is down to 6 percent (for a long time it was 8 percent or more a year) but Morningstar estimates it’s closer to 3 percent. Of course, that’s still growth, but the Chinese public has become accustomed to a rapid pace of economic improvement, which has slowed. That slowdown in China is one of the main factors that has had people worried about growth elsewhere around the world, and it’s been exacerbated by the trade war.

But China is also wedded to its economic model, and it has domestic politics that make it difficult for Xi to give Trump whatever he wants. And I think there is a sense that protectionism helped some other economies grow domestic industries into prosperity, and that they should be entitled to do the same. I think cognizance of the economic risks of the trade war are what motivated China to reach this phase-one agreement and effectively achieve a trade cease-fire. But that fear wasn’t enough for them to just give Trump whatever he wants.

Ben: So just to circle back around to the original point, you’d say it’s unlikely that the U.S. will go back to the relative calm of the Obama years vis-à-vis China anytime soon?

Josh: I do think that’s right, but I’d also note it’s possible for an international relationship to be in an “unsustainable” place for a long time. For example, in a lot of ways, Trump is repeating the same stalemate the last three administrations had with North Korea, only in a more flamboyant manner (and while doing much more to personally validate Kim).
I think the next administration will be more vexed toward China than Obama’s (which was already somewhat vexed) without a lot of fundamental change in the relationship necessarily following. Though a concerted effort to strengthen relationships with other countries in the region would be the opposite of what Trump has done and give us more leverage in the long run.

Will the Trade War With China Be Permanent?