OK, the China Trade Talks Are Tough, But What Would a Pact Look Like?

More US goods bought, less tech transfer, and an enforcement mechanism. Maybe.

President Donald Trump disconcerted Wall Street Tuesday by taking a downbeat view of the US-China trade talks. Now, some say that Trump will want to cut a deal to get the trade war—unpopular among Americans—over with in time for his reelection drive next year.

But let’s say a pact is forged. What would it look like?

 A study by the Center for Strategic & International Studies (CSIS) has some answers. William Alan Reinsch, a CSIS senior adviser, writes that there are two ways to win in a trade competition: “Run faster or trip the opponent.” Trump wants to use the trip strategy, setting up an agreement that would hobble Beijing. Obviously, the Chinese regime won’t be a party to that.

Hence, a trade settlement would have three elements, Reinsch writes:

China buys more US goods. After his meeting with Chinese leader Xi Jinping at the G-20 summit in Japan last month, Trump contended Xi had agreed to buy more US agricultural products. Thus far, it’s unclear whether Xi really went along with that. The question of US manufactured goods going to China remains unresolved. Still, this point is the easy one, Reinsch contends.

“That is not difficult for China to do,” the CSIS scholar notes, “and it scratches the president’s itch for a visible concession that he can boast about, and which will reduce our bilateral trade deficit.” 

The downside, however, is that—even if the US could manufacture as many goods as the Chinese might want to buy—the result would be an over-concentration of exports to China, at the expense of other markets. Such a development, Reinsch maintains, “would make us more, rather than less, vulnerable.”

Chinese structural reforms. Namely, barring intellectual property theft and ending the requirement US companies to partner with Chinese counterparts, thus allowing them to make off with American know-how. But doing this still leaves the state-dominated economy in place, presumably with government subsidies to keep giving their homegrown entities a leg up.

China would be reluctant to abandon Communist Party control of the means to production and enterprise, in Reinsch’s view. What’s more, Beijing wouldn’t want to surrender its economic adrenaline, those state subsidies. So the structural provision would be limited in its scope.

Enforcement of the agreement. This is the really hard part. “The United States insists that China give it the unilateral right to determine compliance and to act unilaterally if Washington believes it is necessary,” Reinsch declares. The Chinese view such an apparatus as a violation of their sovereignty, and prefer a “consultation process,” which Washington thinks is too weak a stricture, he explains.

It won’t be the negotiators who will resolve this Gordian knot of a question, he writes. This will “end up in the laps of the two presidents.”

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