How Trump is missing the point on China - Harry Broadman

Harry Broadman

The world, including China, is still trying to make sense out of the Trump/Xi trade talks. The Trump trade team is fighting the wrong battle, argues former U.S. Assistant Trade Representative Harry Broadman for Gulf News. "The Trump trade team continues to fight the wrong battle with China."

Harry Broadman:

For the US — as well as for the rest of the world — the strategic challenge with China is that fundamentally it is not a bona fide market economy. More importantly, it has not lived up to its legal commitments under its 2001 WTO accession agreement to reform into one.

Yet the White House — whether in Buenos Aires or Beijing or Washington — does not squarely focus on this issue. 

Instead, the Trump trade team continues to fight the wrong battle with China, uses the wrong weapons, and is in the trench alone while China’s harm to the US is little different than what it inflicts on the world’s other major trading partners. What do I mean? 

Trump’s preoccupation — actually it borders on being a fetish — with reducing the US bilateral merchandise trade deficit with China is a wholly misplaced battle. Bilateral trade deficits in and of themselves are not economically meaningful — especially in a world where supply chains are multinational. 

If anything, they reflect symptoms rather than a disease. 

At the same time, tariffs, which, after all, are really taxes on imports, are very crude instruments to try to induce economic change “upstream” in a supply chain. Perhaps if China were truly a market-driven economy, where prices are set freely by supply and demand, tariffs might bring about some changes “behind-the-border”. 

But in non-market economies, prices do not hold the import in conveying value as they do elsewhere. 

More to the point, in the case of China, the core trade problems are inherently part of the underlying fabric of the country’s domestic economy. 

The backbone of China’s economic engine remains dominated by large state-owned enterprises (SOEs), propped up by large state-owned banks (SOBs). The rub is that the SOEs and SOBs are at the core of the Communist Party’s raison d’etre and the “socialist market economy” philosophy that has underpinned China’s political economy structure since 1978. 

To say it’s going to take a lot more than tariffs to unwind these would be an understatement. 

It’s no surprise Trump prefers to negotiate bilaterally. But structuring one-off real estate transactions in New York are no match for today’s complexities of crafting global trade deals. In fact, when an opposing party engages in trade practices that many of your closest allies also judge to be unfair, it makes no sense to not bring them into the fold to strengthen your negotiating leverage. 

Yet that is exactly the formula Trump has been following — and not just with respect to China but all other trading partners. 

Finally, the accord Trump struck with Xi at the dinner has only deepened the openly contradictory US trade policy the White House has been pursuing with China. Here’s the contradiction in a nutshell: the US asserts it is appalled over China behaving as a non-market economy but then goes ahead and asks the Chinese government, itself, to purchase more US exports. 

Is it any wonder why Xi thought the dinner was a great success and his top economic advisers continue to shake their heads trying to make sense of US trade negotiation strategy?

More at Gulf News.

Harry Broadman is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more experts on the trade war between the US and China? Do check out this list.