It would be a grievous error to grant China any U.S. tariff relief in advance of a broader trade deal. Doing so would cultivate Chinese perceptions of U.S. negotiating weakness and thus deter Beijing from making significant concessions on the trade issues that matter most.
Thursday’s Wall Street Journal reported that the Trump administration is considering doing just that. According to the Journal, Treasury Secretary Steven Mnuchin is leading the chorus in favor of early U.S. concessions.
But Mnuchin faces resistance from U.S. Trade Representative Robert Lighthizer, who believes any concessions would show “weakness” as the clock counts down for a broader near-term U.S.-China trade deal.
Lighthizer is correct. While Mnuchin is under obvious pressure to move the negotiating needle by March 1 (when new tariffs will enter force), his motivation fosters a misled notion of the Chinese regime. Because for the Chinese government of Xi Jinping, this isn’t about fair dealing and trust-building. It’s about mitigating pressure with minimal compromise. The Chinese do not see this ongoing trade crisis as Americans do, as a matter to be bargained over honestly. Instead, the Chinese see this as an opportunity to extract maximum U.S. tariff relief in return for meager reciprocity.
If Mnuchin continues on his current track, the Chinese will be emboldened to get their way.
That would be disastrous for the U.S. It would greatly reduce the prospect of any significant change in Chinese policy towards U.S. exporters and technology firms. These companies face extraordinary barriers to entry or conditions of entry in the Chinese economy. Their revenue opportunities suffer for it.
But this isn’t just about the private sector, it’s about U.S. national security and international affairs. Because at the heart of this crisis is China’s capricious manipulation of intellectual property and international trading regimes. And that’s what U.S. tariffs are rightly designed to punish. In turn, any trade deal with China must lead to at least some Chinese concessions towards greater respect for World Trade Organization rules, and Beijing’s reduced thievery of high-value intellectual property.
Absent those concessions, any deal will simply represent the triumph of China’s long-term interests over America’s short-term greed. China will get its tariff relief, America will get a few dollars’ worth of new market access, but nothing will really change where it matters most.
Over the next 10 years, we’ll continue to see China’s unrestrained usurpation of that which makes our society more prosperous and our people more satisfied: value-added economic production. And we’ll see China’s unrestrained ability to rewrite international rules away from lawful commerce and into feudal mercantilism. We must avoid this future.
Assuming the Journal’s report is accurate, Mnuchin needs to start thinking more strategically. China does not think as the U.S. thinks here. And if Mnuchin fails to recognize his adversary, he’ll induce a terrible deal.
