US trade policy adapts to a China that will never change


President Biden’s senior trade official this week presented an unusually grim assessment of US efforts over the past two decades to change China’s business practices, from subsidies and intellectual property to technology transfer.

In annual bilateral talks, the United States secured reform commitments that proved “inconsistent and unenforceable,” said US Trade Representative Katherine Tai. When the United States won cases at the World Trade Organization, China did not change its underlying policies, she said. Former President Donald Trump’s tariffs led to a limited trade deal that “did not significantly address fundamental concerns” about China’s behavior, Tai said.

China has “doubled its state-centric model,” she said in her long-awaited speech. “It’s increasingly clear that China’s plans do not include meaningful reforms,” she said.

Ms. Tai’s fatalistic view echoes a popular school of thought in the Trump administration and among some in Biden’s orbit: The engagement has always been doomed because China has never believed in the world order championed by the United States and other market-oriented democracies. This thesis is best presented in “The Long Game: China’s Grand Strategy to Displace American Order” by political scientist Rush Doshi, currently a member of Mr. Biden’s National Security Council. (He finished the book before joining the administration.)

Based on a meticulous study of Chinese officials’ own remarks and documents, Mr. Doshi’s book concludes that China has, since 1989, viewed the United States as hostile to its own rise and pursued a grand strategy consisting first to blunt American influence, then to displace it as the world’s leading military and economic power. China joined the WTO and other multilateral forums not to conform to the existing world order, but to limit the influence of the United States on China, he said. The 2008-09 financial crisis and the Covid-19 pandemic convinced China of the superiority of its own model and the irreversible decline of the United States, according to the book.

A semiconductor technology trade fair in Shanghai this year.


Photo:

aly song / Reuters

While Ms. Tai shied away from grand strategy, she nonetheless described China’s interests as fundamentally at odds with those of the United States. By subsidizing steel, solar panels and other sectors, China has wiped out entire US industries and thousands of jobs, and intends to do the same with semiconductors, she said. declared. It has unleashed “a zero-sum dynamic in the global economy where China’s growth and prosperity comes at the expense of workers and economic opportunity” in the United States and its allies, Tai said.

This assessment raises a sort of dilemma. If you assume that China will never change, how do you formulate a trade strategy for China? The answer is to leave China out of it. Ms Tai said she would engage with Chinese authorities – she is, after all, a negotiator – while lowering expectations for the outcome. The United States, she suggested, has long prioritized market access for American companies with little success. It forced us to “open our eyes and think about what we are looking for in more liberalized trade (or)… smarter and more resilient trade? She said.

Rather, Mr. Biden’s Chinese strategy, as she described it, would have multiple axes. First, rebuilding the domestic economic strength of the United States, by investing in infrastructure, research and development – the subject of a bipartisan bill valued at about $ 1,000 billion that has passed by the Senate earlier this year.

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Second, rather than hope that China opens its markets to American companies, the Biden administration will push them to manufacture more at home, protect the United States from supply disruptions, and strengthen domestic innovation capacity: “I don’t think enough people appreciate the degree to which manufacturing activity is a critical part of the innovation ecosystem,” she said.

Third, the administration would work with its allies on new trade deals that address features of the Chinese system that the WTO cannot restrict, such as subsidies and state-controlled enterprises.

The advantage of these measures is that none of them require the cooperation of China. The problem is that all of them require cooperation from the others which may not be available. For example, last week, Progressive Democrats refused to pass the Senate infrastructure bill unless they also get a much bigger, more expensive and more controversial expansion of the social safety net that has nothing to do with China’s challenge.

Even among allies, new trade agreements regularly require years of painstaking negotiations. Mr. Trump withdrew from one of those efforts, the 12-Country Trans-Pacific Partnership, in 2017, and Ms. Tai shows no interest in joining her successor, although she has expressed support for a joint effort with the European Union and Japan to toughen subsidy rules.

The hardest part is bringing back American industrial supply chains. The events of the past year have shown how essential China is to global manufacturing. Despite the tariffs, the Covid-19 and other disruptions, few US companies are relocating their operations and most find it unthinkable to leave China. Indeed, their priority is to get US tariffs lifted on China, and Tai’s most notable political announcement on Monday was to let importers re-apply for exemptions.

Ms. Tai said that Biden’s strategy is to engage China in a “position of strength”. The problem is that even if it is successful it will take years to achieve results and China is 20 years ahead.

Write to Greg Ip at [email protected]

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