US-China trade war could end with a ‘big deal’ through baby steps towards mutual understanding
Robert Lawrence Kuhn says the US must accept China’s need to support technological development, while China should work with US policymakers who oppose tariffs but want the country to further open its markets and protect intellectual property rights
Let me offer some critical balance and call out misunderstandings on both sides. Regarding US confusions, for Trump, the conflict has always been about US trade deficits with China, about US$375 billion in 2017. But a country’s exports and imports are not like, say, a real estate company’s revenues and expenses. Trade balances are complex. Some Chinese products are produced by foreign-owned companies in China, including American companies, which capture profits from goods counted as Chinese exports.
The trade deficit includes the cost of intermediary products, like displays and chips for iPhones, which are produced in other countries; the Chinese assembly cost constitutes only a small fraction of the full cost attributable to the trade deficit.
Watch: The origins and impact of the US-China trade war
A large majority of American policymakers and analysts, Republicans as well as Democrats, have no such anti-China bias. Almost all believe that Trump’s tariffs are wrong-headed and mutually harmful, but, as much as they reject Trump’s tariffs for economic reasons, and dislike Trump for personal reasons, almost all still support getting tough with China. It might prove useful for Beijing to discern why.
“Enough’s enough,” say American experts, who have come to believe that China must change its economic behaviour, and that perhaps Trump’s tariffs may finally get China’s attention.
Watch: What’s the beef with the ‘Made in China 2025’ strategy?
In Beijing, at the outbreak of the duelling tariffs, there was talk that the trade war with the US is a real “war” that China must prioritise winning.
But what does it mean to “win” a trade war? The only way anyone wins a trade war is for it to end, and for this to happen, each side needs to believe it won, or at least convey to its citizens that it won.
Politically, before the US congressional elections in November, neither side has incentive to compromise. But it would be a mistake for China to bank on a weakened Trump. It bears repeating: although most American experts believe that Trump’s tariffs are ill-conceived and self-damaging, a broad, anti-China consensus has been building in Washington, the like of which I’ve not seen in my 30 years tracking China.
What to do? First, the US should recognise that China will never succumb to foreign pressure. But China will continue to reform, and that’s the key.
That’s three of the “big five” US concerns, leaving only the first, opening of China’s markets, and the last, China’s support for future technologies under “Made in China 2025”.
Could the stage be set for a “big deal”? China would further open its markets and do so earnestly, specifically, persuasively, and rapidly, and the US would accept Chinese government support (carefully circumscribed) of future technologies.
Chinese economists tell me privately that much of what the US wants China to do, China should do anyway. China’s own continuing development depends on greater opening of its markets. Greater competition would force good Chinese companies to improve and bad Chinese companies to exit – both of which would upgrade China’s economy, increasing productivity.
The US might appreciate that China must transform its industry or remain trapped in middle income. Why should China renounce a programme to enhance its industrial capacity and efficiency? If the US imagines “Made in China 2025” as being so potent, the US can do likewise – or even better.
China is seeking to optimise domestic development to benefit its people, not trying to replace the US as the global leader. Moreover, as the world’s second-largest economy, engaged with every country on Earth, it is simply impossible for China to maintain Deng Xiaoping’s almost 30-year-old maxim to “hide one’s capabilities and bide one’s time”.
China might appreciate it is no longer the developing country it was when entering the World Trade Organisation in 2001 and looser rules allowed it to protect nascent industries. China might seek common ground with mainstream US policymakers and experts who vehemently oppose Trump’s tariffs – and who do not oppose China’s rise – but who now genuinely feel that China should open its markets faster and protect intellectual property rights better.
Each side might recognise its own misunderstandings.
First, baby steps.
Then, the “big deal”.
Robert Lawrence Kuhn is a public intellectual, international corporate strategist and investment banker, and China expert/commentator. He is the author of How China’s Leaders Think and he is co-creator (with Adam Zhu) and host of CGTN’s “Closer to China with R.L. Kuhn” and “The Watcher” commentaries