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WALL STREET JOURNAL
The
Trade Wars of 2018: An Alternate History
What if Donald Trump had sought allies instead of adversaries? By
Greg Ip Fights
with allies and rivals for what President Donald Trump calls unfair
trade practices have yielded acrimony and retaliation from Canada,
Mexico and Europe, while China has yet to budge. Here’s how events might
have unfolded with an alternate approach:
Looking back from 2020, it was a masterful application of strategy and
tactics that enabled Donald Trump to win the trade war with China. The
U.S. president began unencumbered by the “engage with China at any cost”
ideology of his predecessors and, as a seasoned deal maker, recognized
that success required leverage, which came from having allies. In
2018, success was by no means assured. When U.S. officials met their
Chinese counterparts that year, China was confident it could wear down
Mr. Trump as it had his predecessors by making grandiose promises of
reform, offering to buy more American coal, soybeans and natural gas to
narrow the trade deficit, and threatening to withhold cooperation on
North Korea. Mr.
Trump’s aides had persuaded him the real problem with China was not the
trade deficit but how China’s mercantilist state capitalism
systematically discriminated against foreign products in China and
forced foreign companies to give up their most precious intellectual
property. That would cost Americans highly paid jobs when Chinese
competitors shut them out in the fastest-growing markets of the future. U.S.
demands reflected that: If China didn’t change its behavior, the U.S.
would ban Chinese companies from acquisitions of, joint ventures with or
substantial investments in any U.S. technology company, ban Chinese
entities from supplying U.S. telecommunications networks, and subject
all Chinese investment to strict reciprocity—i.e., the same restrictions
that U.S. companies faced in China. China
assumed it could undercut the U.S. as it always had, by playing its
allies off against it. But instead it encountered a united front. At a
pivotal G-7 meeting, Canada, the European Union and Japan said they
would join the U.S. in an unprecedented case at the World Trade
Organization alleging extensive and undisclosed domestic subsidies had
“nullified or impaired” the benefits China’s accession was meant to
bring to its partners.
Emmanuel Macron, France’s president, had also persuaded the EU, Canada
and Japan to match the U.S.’s ban on Chinese technology investments and
its policy of strict reciprocity on investment. To slow China’s efforts
to build a national champion in aviation at their expense, the G-7
agreed to ban joint ventures and further outsourcing to China by their
own aviation companies. The
united front was possible because Mr. Trump’s aides had persuaded him to
set aside irritants with U.S. allies by striking deals that let all
sides declare victory. On the WTO, members agreed to shorten the time it
took to achieve final rulings, which had allowed illegal behavior to
persist, and to narrow the sweep of its appeals panel’s rulings, which
the U.S. had long complained undermined its sovereignty. On the
North American Free Trade Agreement, Canada and Mexico acceded to U.S.
demands for higher North American content for autos and a minimum amount
to be built by workers earning at least $16 an hour. But Mr. Trump
dropped demands for a five-year sunset to the agreement and agreed to
keep Chapter 19, which allows anti-dumping and countervailing duties to
be appealed to a binational panel. Canada
agreed to slowly phase out quotas on dairy imports in return for the
U.S.’s doing the same on softwood lumber. Mr. Trump downgraded his
Mexican border wall to a barrier and stopped insisting that Mexico would
pay for it; in return, Mexico amended asylum laws to no longer let
Central American refugees transit through Mexico to enter the U.S. Since
the U.S. and its allies acknowledged China was the source of global
oversupply in steel and aluminum, they formed a joint monitoring program
to stop Chinese metal from being “transshipped” through third countries
to evade each other’s duties. As the
U.S. noose tightened, China retaliated: U.S. companies suddenly found
their applications to expand in China being slow-walked, and U.S.
exports of car parts and agricultural products were held up at Chinese
ports for bogus health and safety infractions. The U.S. responded by
announcing a “Section 301” investigation that would hit China with
escalating tariffs for its nontariff trade barriers. China
also stepped up purchases of dollars in an effort to push down the value
of the yuan, which would make its exports cheaper abroad. The U.S.
Treasury responded by authorizing offsetting purchases of yuan. China,
boxed in on trade, played its foreign-policy card. At its prompting,
North Korea broke off negotiations on admitting international weapons
inspectors, which was to be a key step toward denuclearization. In
response, the U.S. declared it would seek to expand missile defenses in
Japan and South Korea, step up naval patrols off North Korea and ask
Vietnam to host a new U.S. naval base. China, alarmed at the prospect of
a growing U.S. military presence on its doorstop, nudged North Korea
back to the negotiating table. By
2019, Chinese officials capitulated. They announced an end to
joint-venture requirements, a phased elimination of limits on foreign
investment, tariff cuts in critical sectors including automobiles, and a
phased-in move to a fully flexible exchange rate. China
would still become an advanced industrial nation, but it would have to
share more of the benefits with its foreign partners. China 2025, its
ambitious plan to become self-sufficient in top technology, was quietly
renamed China 2035. As
U.S. companies’ sales abroad boomed, they teamed up with the federal
government to retrain thousands of former factory workers for
high-paying, high-skilled jobs. Mr. Trump had, as promised, fixed the
global trading system by relying as the U.S. always had, on
alliance-building. |