This Is the Wrong Way to Deal With China
(Bloomberg Opinion) -- U.S. President Donald Trump has good reason to be skeptical about China's willingness to live up to its commitments in any trade deal. Seasoned foreign business executives on the mainland know that any agreement there represents the start of a bargaining process, not the end. Nor is it uncommon for Chinese officials to unpick terms at the last moment, just as they seem to have done ahead of talks this week in Washington, D.C.
Even before those meetings, Trump’s top aides had been displaying a five-page document, printed on both sides in small type, listing every unkept promise made by China over years of shuttle negotiations starting under the George W. Bush administration. Yet, the fact remains that imposing more tariffs on the country as the U.S. just has, raising duties on $200 billion worth of Chinese goods to 25%, isn’t the way to get Beijing to behave better.
It’s important for the White House to recognize that even when Chinese negotiators are sincere, they’re often handcuffed by domestic politics. The Chinese bureaucracy can be unyielding, and Chinese leaders are powerful but not omnipotent. Not even President Xi Jinping, perhaps the most dominant Chinese political figure since Mao Zedong, can deliver what Trump wants: a full makeover of the Chinese state-led industrial system. That would challenge almost every bureaucratic interest group in China.
Moreover, the Chinese system lacks the personal accountability necessary to make deals stick. In his classic work "Chinese Negotiating Style,” the late American political scientist Lucian W. Pye describes how foreign investors misinterpreted Chinese leader Deng Xiaoping's approval for projects as the final say, and then felt embarrassed when the deals fell through. Pye writes that this revealed naivete about the Chinese political process: Unlike in the West, Chinese leaders display their power not by taking responsibility for decisions but by avoiding it. It’s the job of subordinates to take the fall if the political wind changes and a decision is attacked.
“Deng Xiaoping got to the top precisely by avoiding accountability as much as possible,” Pye wrote.
Trump isn’t wrong to hold out for a meaningful settlement. He’s even won grudging respect in China among those officials who welcome the pressure for change. A joke doing the rounds in Beijing poses the question: Who are the real heroes of economic reform in modern China? Answer: Deng Xiaoping and Donald Trump.
Yet, while tariffs have gotten Beijing's attention, doubling down on them now -- Trump has threatened to go further and extend the 25% duties to all goods imported from China -- is self-destructive.
The White House should discard the fantasy that tariffs will produce a quick solution that solves all of its trade frustrations with China. Even if Beijing enshrined in law all the concessions it has made over the past year, as U.S. Trade Representative Robert Lighthizer is demanding, it could still find numerous ways to stymie their implementation. Equally, the U.S. must not assume it will be forever impossible to overturn the most damaging aspects of Chinese mercantilism. Disengaging from China would compound the hurt from tariffs.
Instead, Trump should learn from recent Chinese experience. In one case, the Xi administration recalibrated policy when private businesses became so alarmed by the economy's statist turn that they sharply curtailed job-creating investments. Authorities are now showering these companies with tax cuts and other incentives to resume spending.
Likewise, when countries from Pakistan to Malaysia started questioning multi-billion dollar Chinese infrastructure projects under the Belt and Road Initiative, the regime rethought the plan’s more controversial aspects, such as contracts exclusively for Chinese companies, and then went a step further. At the second Belt and Road Forum a few weeks ago, Xi promised market opening, protection for intellectual property rights and increased imports, all with Trump’s priorities in mind.
In both cases, the regime took a challenge seriously when it threatened China’s core economic interests. A patient and unified global effort to roll back predatory Chinese practices, including subsidies to state industrial champions and forced technology transfers, would generate this kind of broad-based and overwhelming pressure on the Chinese bureaucracy as a whole.
The Trump team must build coalitions of allies determined to win a level playing field in China. This group should blacklist Chinese companies, state or private, that benefit from cybertheft and other abuses, along with their top executives, financiers and advisers. U.S. companies must abandon their reticence to challenge unfair treatment under WTO rules. Reciprocity should be the watchword: Foreign countries should aggressively block Chinese firms from markets that aren’t open in China.
China will give ground when it perceives the alternative is too damaging, not because of Trump’s bluster, bullying or self-destructive tariffs aimed at hurrying up a deal.
To contact the editor responsible for this story: Nisid Hajari at nhajari@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrew Browne is the editorial director of the Bloomberg New Economy Forum. Prior to joining Bloomberg, he was China editor, senior correspondent and columnist for the Wall Street Journal.
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