Our Latest Views on the U.S. - China Trade Dispute

In my December issue of Sinology (“A Truce Over Steak and Malbec”) I wrote that “prospects for real progress on substantive issues with China are now better than at any point in the Trump administration,” because Trump recognized that “a trade war with America's largest trading partner would damage the U.S. economy and equity markets, and thus the president's re-election chances.”

The ensuing 11 rounds of negotiations over five months appeared to be on track for a deal—until they weren't. The president tweeted in early May that “China should not renegotiate deals with the U.S. at the last minute.”

But I remain optimistic, based on my view that Trump continues to believe that his re-election prospects are best served by a deal.

At a late-May press conference in Tokyo, Trump responded to a question by saying that although China “would like to make a deal . . . We're not ready to make a deal.” A moment later, however, he added, “But with all of that being said, I think that there's a very good chance that the United States and China will have a very good trade deal.”

Trump and Chinese leader Xi Jinping are scheduled to meet again in late June at the G-20 summit in Osaka, and we are likely to have more visibility at that time.

Not Just About Trade

Far more than trade will be on the table when the two leaders next meet. Trump will have to accept that the U.S. must share economic and strategic power with a rising China, while continuing to take steps to help shape how Beijing uses its influence. Washington will also have to accept that while the past three decades of economic engagement have promoted significant change within China—from no private sector, to an economy where 85% of urban employment is with small, entrepreneurial firms; accompanied by a broad expansion of personal freedom—fundamental changes to China's political structure cannot be dictated by outsiders, but are very likely to evolve as the country becomes wealthier.

The Xi administration will have to accept that along with its professed desire to use its rising power within the existing global infrastructure, comes a responsibility to follow the rules of that system and to be transparent. Xi will also have to accept that his policies have consequences outside of China, and take responsibility for them. For example, just as the U.S. had to consider the impact of China's new WTO commitments in the 1990s on its then-impoverished northeastern rust belt, Beijing must deal responsibly with the impact of its industrial policies on employment in developed countries.

In short, the two leaders will have to agree that rising competition between the two nations does not have to be a zero-sum game, and that it is cooperation and concessions, rather than confrontation, that will leave both sides better off.