China is, by many counts, the world’s largest economy. Whether measuring by GDP adjusted for price disparity, manufacturing output or export volume, China is an economic behemoth. Global markets have adapted to this reality and U.S. businesses, including mine, have come to depend on Chinese manufacturing to feed their supply chains.
Political discourse has not adjusted as quickly to this reality, though. Heated rhetoric is too often part and parcel of any conversation on U.S.-China trade relations. And when the topic of conversation is the nearly $650 billion in annual trade in goods and services between our two countries, every word matters.
First, it’s important to understand that President Trump is right to point out the cost of intellectual property (IP) theft to American companies operating in China. Americans are entrepreneurs and innovators. Our intellectual property — the secret sauce of how we do what we do — is the product of our ingenuity and investment, and our greatest strength.
IP protections for American companies must be strongly enforced across the globe; if they’re not, we will lose our competitive advantage and our national economy will suffer. Some estimates have found that the theft of American intellectual property by Chinese actors costs the U.S. economy as much as $600 billion annually, nearly the value of our entire goods and services trade relationship with China.
From advanced manufacturing to software and telecommunications to food and agriculture, strong IP protections underpin our entire economy. In the energy sector, American innovation has led to the most significant increase in production in a generation, which has in powered a revival of the manufacturing sector.
But the trade war that is unfolding puts too much of that recent growth at risk. By using tariffs unilaterally to target politically sensitive industries, President Trump is putting Chinese President Xi Jinping in a difficult public position, in a country where saving face is all-important. China has depended on economic growth to justify the Communist Party’s autocratic political control for decades. As prominent China lawyer and commentator Dan Harris said recently, “No country likes to be told what to do …. That goes double for China. If you push them loudly, they will feel they have no choice but to push back loudly.”
Trump is pushing “loudly” on China, and it’s putting American businesses, which depend on the Chinese market as a critical link in their supply chain for either raw or manufactured inputs, in a tough spot. Trade is not a zero-sum game. It allows countries to specialize and grow within sectors of individual strength. It also encourages growth abroad, creating a new class of consumers for our goods and services.
The U.S. steel industry might benefit from the Trump administration’s tariffs in the short term, although some companies which rely on inbound investment have said that they may lay off workers because of the tariffs. Steel companies only employ a few thousand American workers, while other industries that employ millions more — oil and gas, farming and ranching, and technology and manufacturing — will be directly harmed by an escalation of the tariff war.
China’s response to President Trump’s tariffs has been proportional so far. But if this escalates into a full-blown trade war, it puts much of the U.S. economy at risk. Meanwhile, Chinese consumers will still be buying international goods — soybeans from Brazil, airplanes from the European Union, and cars and trucks from South Korea. The only winners in these kinds of disputes are those who aren’t involved in the exchange of fire.
The Trump administration may well win concessions from Beijing. If the current visit to China by the president’s trade and economic advisors fails to produce results, though, Trump should consider other tactics to pressure China into improving its policies toward American industry.
By reopening negotiations for a Bilateral Investment Treaty (BIT), which would include many provisions — like acceding to the global Government Procurement Agreement, as China promised to do when it was granted membership in the World Trade Organization in 2001 — that protect U.S. companies against unfair trade practices, President Trump could move China to return to the rules-based trading system that has underpinned American growth since the 1950s.
The Trans-Pacific Partnership, an 11 nation free-trade agreement that previously included the United States and is intended as a rule-of-law counter to China in the Asia Pacific, also includes the stick of snapback tariffs to accompany the carrot of freer trade and investment flows. Since the U.S. left the negotiating table, the TPP has been concluded. It has cemented strong trading relationships from Japan to Australia to Vietnam, all countries that have faced their own challenges with China’s aggressive trading practices.
Rejoining the TPP and reopening China BIT negotiations would allow both President Trump and President Xi to save face while requiring China agree to a stronger system of enforcement.
Neither country will win in a trade war, and globally integrated companies would be the biggest victims. There are better, less risky options than tariffs available. For the sake of American enterprise, President Trump and his negotiators should consider every one.