It’s Time for China to Own Up to Its Trade Faults

August 9, 2019

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As the China-U.S. trade talks resume in Shanghai, with President Trump warning President Xi that there will be consequences if China tries to “wait Trump out” until next year’s U.S. presidential election, the key question is whether there is a path to reengagement and some normalcy over trade relations—or whether a new trade cold war, with an ultimate decoupling of the two economies, is the inevitable endgame. China seems to be digging in, with the Chinese government dusting off references to the Communist Party’s famous “long march” and the People’s Daily issuing dire statements such as: “Don’t say we didn’t warn you!” in a commentary titled “United States, don’t underestimate China’s ability to strike back.”

No person of reason underestimates China’s ability to strike back. The real question is whether China can be levelheaded and act in its own interest. To be sure, as a rhetorical tool to pressure the Trump administration to accept a deal slightly less advantageous to the United States while also helping to win the global battle for goodwill, this kind of bluster might make sense. But it’s one thing to swagger and threaten; it’s another thing to believe it. Unfortunately, China appears increasingly to believe its own narrative which, if true, makes it much harder for China to make a deal that will be in its long-term economic interests.

We see this in two key ways. First, Chinese officials keep repeating the claim that the United States has no right to interfere in internal Chinese economic affairs. After the Chinese government reneged on its original draft agreement and the Trump administration said “no deal,” voices within the Communist Party were stating that, “an unequal treaty that codifies meddling in our domestic affairs into law is unacceptable.” Do China’s leaders really believe that China can do whatever it wants when it comes to its policies affecting trade and global investment? Because if they do, they clearly either didn’t read the document they signed to join the World Trade Organization (WTO) in 2001 or they are choosing to turn a blind eye to it.

By joining the WTO, China committed to a regime in which they have rights, but also responsibilities. Their responsibilities are to abide by the letter (and ideally the spirit) of the WTO agreement. The Trump administration is not asking China to change internal economic policies; they are asking China to change economic policies that unfairly impact global trade and investment, including significant intellectual property theft, forced joint ventures with Chinese companies, massive industrial subsidies to national champions, and markets closed to or discriminating against foreign firms. Indeed, when the Information Technology and Innovation Foundation ranked 56 nations on 16 variables affecting trade and investment, it found that China ranked as the most mercantilist nation by far. If China really believes it and only it can determine China’s internal economic policies affecting trade, then it should do the right thing and withdraw from the WTO and the obligations that come with it.

China also is replaying its long-running narrative that it is once again the victim of foreign imperialist bullying. As a People’s Daily editorial said, China will “embark on a new ‘Long March’ journey with greater courage and resilience and will never yield to foreign bullying and assault.” To be sure, China was victimized by imperial powers as recently as World War II.  But as University of Denver professor Suisheng Zhao has stated, “the Chinese people suffer from a deep-rooted ‘victim mentality’ stemming from a perception that they were ‘humiliated’ by the Western powers when they were weak in the nineteenth century and in the 100 years since.” While a useful card to play, the idea that the second largest economy on the planet is a victim is fanciful. Moreover, most American elites view the Trump administration negotiations with China not as an attempt to keep China down, but an attempt to ensure that China plays at least somewhat more by the rules.

Successful negotiations between two parties—whether between spouses, companies, or in the case of the trade war with China, countries—depend on each side having an honest assessment of their part in the conflict. Until China admits that it is the serial offender in this relationship and that—for the good of its own economy, its standing in the world, and the health of the global economy—it needs to roll back many of its mercantilist policies and practices, the odds of the trade war ending appear slim. And that will be everyone’s loss.