Sections

Commentary

Tit-for-tat cycle with China will hurt U.S. economy

A vendor holds Chinese Yuan notes at a market in Beijing, August 12, 2015. China shocked global markets on Tuesday by devaluing its currency after a run of poor economic data, a move it billed as a free-market reform but which some experts suspect could be the beginning of a longer-term slide in the exchange rate. REUTERS/Jason Lee - SR1EB8C09B142
Editor's note:

There are legitimate reasons for growing public frustration with China, writes Ryan Hass. The Chinese have overstepped in key areas, and it is appropriate and necessary for the United States to push back against problematic Chinese behavior. But before doing so, the administration owes the American people an honest accounting of the stakes involved in the U.S.-China relationship. This piece originally appeared in the Seattle Times.

Over the past month, the Trump administration has signaled its intention to embark on a new strategy for responding to China’s rise. This approach arises from a judgment that the U.S. and China are locked in an ideological struggle between freedom and authoritarianism. As China’s ascent threatens America’s global leadership position, the thinking goes, a more hard-nosed approach is needed to protect America’s place in the world and the well-being of its citizens.

Proponents of this strategic shift have found validation in Xi Jinping’s recent pronouncements. Xi has predicted that China will reclaim the mantle of global leadership, and he has promoted a “China solution” as an alternative to the Western democratic governance model. In so doing, Xi emboldens those in Washington who view the U.S.-China relationship as an ideological battle for global supremacy.

President Donald Trump also has pushed the relationship in an adversarial direction, harnessing public frustration with China for his political benefit. During and since the presidential campaign, Trump has tapped a vein of public anger by portraying China as stealing American innovation, taking away American jobs, and usurping America’s global leadership. To be fair, Trump has also at various times lavished praise on Xi in attempts to elicit Chinese cooperation, but these efforts have not yielded desired progress, leading Trump to signal recently he will take a tougher approach toward China.

There are legitimate reasons for growing public frustration with China. The Chinese have overstepped in key areas, and it is appropriate and necessary for the U.S. to push back against problematic Chinese behavior. But before doing so, the administration owes the American people an honest accounting of the stakes involved in the U.S.-China relationship, as well as an explanation of what problems need fixing, and how best to do so. To date, Trump administration officials have been quick to highlight problems, but largely absent from offering credible solutions.

Here are the facts: China is America’s largest trading partner, the third-largest (and fastest-growing) market for U.S. exports in the world, and the largest holder of U.S. debt. Trade and investment with China support roughly 2.6 million jobs in the U.S. Any rupture in relations would come at a high economic cost for American citizens, likely leading to downward pressure on the stock market, higher prices for Chinese-manufactured goods like iPhones and weaker economic growth.

In addition, it is worth bearing in mind that China’s rise has not necessarily come at the expense of the United States. According to IMF data, in 1992—at the height of America’s post-Cold War dominance in the international system—the U.S. economy accounted for 26 percent of global GDP in nominal terms. In 2017, the United States still accounted for 24.4 percent of global GDP. The key difference is that Europe’s and Japan’s shares have declined while China’s has risen rapidly during this period, from less than 1 percent in 1992 to nearly 15 percent of global GDP now.

Second, while China’s unfair trade practices are a real problem that must be addressed, they have not been the principal cause of recent U.S. job losses. According to research by Ball State University, 85 percent of job losses have been attributable to increases in automation, not trade with China. Simply put, U.S. factories are producing more with fewer people. As a result, trade protectionism is unlikely to override the forces of automation that are driving the bulk of job displacement. Protectionism could, however, harm economic growth.

In seeking to resolve specific problems with China, the U.S. can draw from its recent experience. In 2015, American policymakers used the threat of sanctions to compel China to enter into a hard-fought negotiation over government-sponsored, cyber-enabled theft of intellectual property for commercial gain. The outcome, while not perfect, induced a significant change in China’s behavior, to the benefit of America’s innovators.

If the Trump administration genuinely wants to solve specific problems, it similarly could press the Chinese to enter into time-bound negotiations, while preserving the credible threat of unilateral tariffs on Chinese products should the negotiations fail to deliver needed results.

If, on the other hand, the Trump administration simply wants to use China as a boogeyman to score political points, it will own the economic repercussions of the tit-for-tat cycle it sparks with China. Economic interdependence cuts in both directions. The Chinese have ample ways to hurt the American economy if they believe they are under attack.

Rather than enlarging areas of friction into elements of some titanic superpower struggle, now is the time to narrow in on specific problems. A serious plan is needed to solve concrete concerns relating to intellectual property protection, industrial policy, and market access for American firms. Hitting China with unilateral protectionist measures and expecting broad concessions in return is not a serious strategy for changing Chinese behavior. On the other hand, an approach centered on maximizing leverage to resolve specific problems holds potential for progress.