The Foreign Service Journal, July-August 2019

34 JULY-AUGUST 2019 | THE FOREIGN SERVICE JOURNAL imports in 1985. China has bilateral deficits with many coun- tries—including South Korea ( -$55.6 billion), Australia ( -$26.8 billion) and Brazil ( -$7.4 billion)—and as its gross domestic product (GDP) growth is expected to slow down, its global trade balance may begin to shift toward deficit, as well. The more significant differences, however, have been China’s willingness to use extra-legal tactics to obtain technology from advanced countries and its growing direct and indirect con- trol over its economy, not to mention Chinese society—a stark contrast to Japan’s Ministry of International Trade and Industry’s (now the Ministry of Economy, Trade and Industry) “guidance” to Japanese companies on where and how they should compete. The Trump Administration’s Response The Trump administration’s determination to deal with these issues led first to the imposition of tariffs on a broad base of $250 billion worth of Chinese exports to the United States. If the purpose of the tariffs was to get China’s attention, it succeeded. The two governments have for nearly a year now engaged in pro- tracted negotiations that first languished, then picked up speed after the Trump–Xi Jinping dinner in Buenos Aires on Dec. 2, 2018, where the two presidents agreed on a 90-day time frame for finish- ing the talks. That deadline came and went amid a flurry of “good faith” and “making progress” statements from both sides, and there was continuing optimism that the two would reach agreement. The mood shifted in mid-May when the United States accused the Chinese of backing off commitments they had made, and President Donald Trump increased the third tranche of tariffs from 10 to 25 percent and threatened to impose new tariffs on virtually all remaining Chinese imports. As of mid-May, it appears that the impasse may continue for some time, although an agreement remains the most likely ultimate outcome. If an agreement is reached, it will likely have three compo- nents, along with the resolution of a number of specific bilateral trade irritants that have been pending for some time. The first part is the easiest—Chinese commitments to buy more Ameri- can goods. That is not difficult for China to do, and it scratches the president’s itch for a visible concession that he can brag about, and which will reduce our bilateral trade deficit. Ironi- cally, however, the real issues here may be the United States’ ability to manufacture as much stuff as the Chinese have agreed to buy and the wisdom of putting too many trade eggs in a Chi- nese basket at the expense of other markets. In the long run, that would create a dependence on the Chinese market that would make us more, rather than less, vulnerable. The second component of an agreement will address the struc- tural reforms that go to the core of our dispute. The most likely outcome is that the Chinese give us some, but not all, of what we have been asking for by making commitments on intellectual property theft, forced technology transfers and opening invest- ment in China, and agreeing to do away with various forms of dis- crimination against foreign companies. One particular change— doing away with joint venture requirements—would go a long way toward reducing the threat of forced technology require- ments, which often occurs as a consequence of negotiations between the U.S. company and the required Chinese partner. Missing from this will be unequivocal promises to turn away from a state-dominated economy—subsidies, support for state- owned enterprises and implementation of Made in China 2025 (the Chinese government’s guidebook for developing national champions in 14 critical technologies)—and move in the direc- tion of a genuine market economy. While doing that would make sense, the Chinese Communist Party’s primary goal has always been maintaining control, and the past few years have made it abundantly clear that for Xi Jinping, that includes maintaining the government’s heavy hand in directing the economy. At the same time, pursuing that policy poses the risk of further slowing growth, which would increase grumbling within both the party and the public. Xi’s dilemma is that such an out- come may, in the long run, prove a greater risk to party control than shifting to a market economy. The third element of any agreement will be an enforcement package, and that has proved to be the most contentious part of the debate. The United States insists that China give it the unilateral right to determine compliance and to act unilaterally if Washington believes it is necessary. The Chinese view that as a violation of their sovereignty and argue for a consultative process, which is not sufficient for the administration. That issue, While some elements of Chinese policy are similar to those Japan employed in the 1980s, there are some important differences. Ironically, one is that China is more open to imports than Japan was.