What many commentators don’t understand about US-China trade negotiations

Many of the commentators analyzing the US-China trade negotiations are making assumptions that are not entirely accurate. I will address 3 of them here.

First, Chinese leaders recognize that free markets drive economic growth. As a rule, Chinese leaders seek to shape markets, not follow them. They talk a lot about “free markets” and “free trade,” but Beijing controls much of production and consumption. Foreign markets (including the US) influence Chinese producers, but state control of the banking and other industries effectively prohibits Chinese firms from competing as they wish. Many Chinese companies benefit from government subsidies, but there are always strings attached.

Second, Chinese leaders are willing to adapt to the established Western understanding of global trade. This is only partially true today. Chinese goods are embedded in the global marketplace, and adding tariffs or removing these good altogether will hurt US firms and consumers. Chinese leaders accept the inevitability of negotiations, but they like their approach to managed trade. It’s benefitted them in the past, and they are not ready to abandon it.

Finally, China must agree to a free-market arrangement to get a deal. All nations would eliminate trade barriers in a perfect world, but a package that includes bona fide progress on issues like intellectual property and state subsidies can and should be acceptable even if these issues are not totally resolved. The global trajectory over the last several decades has favored free markets and will likely continue but change rarely occurs overnight.

I continue to believe that the greatest impediment to a trade deal is the 2020 elections. If President Trump is not reelected and the new administration is willing to soften the US stance, then holding out will prove to be an effective strategy for the Chinese. If only the Democrat contenders could stand with the President on this issue, the incentive to wait would be removed.

6 thoughts on “What many commentators don’t understand about US-China trade negotiations

  1. Clinton and Bush should have dealt with China a long time ago when it was easier, Trump is cleaning up.

  2. Trump has changed the China narrative. We can never return to the idea that China is a budding free-market economy. It’s still a command and control society.

  3. The US must prepare for a long trade dispute. China already has. It’s easier for them because they don’t have 2-party elections every 4 years. When they see we are united and willing to stay the course, they will come to the table.

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