U.S. President Donald Trump is right to shine a spotlight on trade issues with China. No other country in the world plays such an important role in international trade while also pursuing a mercantilist economic policy. In fact, China hands and trade professionals broadly agree that the country has blocked or impeded U.S. firms—from financial groups to automotive businesses—from competing fairly in the Chinese market. China’s poor protections for intellectual property rights and other problems also place U.S. firms at a competitive disadvantage.
Trump is still assembling his Asia team and developing his approach to trade, but reminding Beijing that there are significant aspects of China’s economic and trade policy that are unfair to foreign businesses is not a bad way for him to start the discussion. After that, he’ll have to pursue the policy approach most likely to produce the results he seeks. But what would that look like?
THE TARIFF SEDUCTION
“Zhongguo ye you zhengzhi,” said a member of the State Council to me. China also has politics. Between the Communist Party, government ministries, and state-owned industries, many constituencies push for policies—such as subsidies for inefficient factories—that protect their own interests. What is more, China’s leadership class views itself as the protector of the country’s international position. These groups will expect Beijing to respond forcefully to whatever actions the Trump administration takes. Not to do so would be an admission of guilt. Worse, it would be seen as a capitulation to a foreign power.
China’s response to any U.S. move on tariffs would come on two levels: rhetorical and policy. Beijing’s rhetoric will attempt to reassure its domestic audience that China has successfully withstood U.S. pressure. There have already been signals of this approach in editorials in the government-controlled media. The more nationalist Global Times stated on January 19 that “Trump’s trade war with China will backfire.” A few days later, the more