Commentary: Trump had a chance for leverage over China but blew it

Commentary: Trump had a chance for leverage over China but blew it

US businesses are still counting the costs of withdrawal from the Trans-Pacific Partnership, says the Financial Times' Tom Mitchell.

BEIJING: Last spring a senior US executive complained to a government official about President Donald Trump’s threat to impose wide-ranging tariffs on imports from China in retaliation for allegedly unfair trade practices.

The executive argued that the Trump administration’s fixation on balanced goods trade between the world’s two largest economies as an end in itself was economically pointless.

It ignored America’s service sector surplus with China, while tariffs would disrupt global supply chains and constitute a tax on US companies and their customers. 

Without disagreeing, the official had a pointed response: What leverage would the executive use to change Chinese approaches that have frustrated US businesses for decades, from forced technology transfers to state-directed industrial policies? 

If nothing else, he argued, Mr Trump’s tariff threat had knocked Beijing off balance and forced it to enter a comprehensive trade negotiation with more urgency than at any point since it joined the World Trade Organisation in 2001. 

READ: Does Europe have a problem with Chinese investments?


The executive had a three-letter answer: TPP, referring to the Trans-Pacific Partnership trade pact from which the US withdrew on Mr Trump’s first day in office. 

The exchange highlights the fundamental disconnect between American business and Mr Trump’s China trade policy. While US multinationals support the president’s aim, they hate how he is trying to achieve it.

Almost a year later, we are about to find out if the end has justified the means. By late April, Mr Trump and his Chinese counterpart Xi Jinping are likely to reach a deal ending their trade war, in which punitive tariffs and counter-tariffs have been imposed on about two-thirds of the countries’ bilateral goods trade.

Donald Trump (left) and Xi Jinping
File photo of US President Donald Trump (left) and China's President Xi Jinping leaving a 2017 business leaders event in Beijing. ((AFP/Nicolas ASFOURI)

When they do, the US president will hail centrally directed Chinese purchases of American exports that will temporarily reduce the country’s deficit in traded goods with China, while also making Beijing’s foreign trade regime less market-driven than at present.

US business will be far more focused on China’s “structural” economic concessions — or lack of them — in the agreement.

Will Mr Trump’s trade representative, Robert Lighthizer, be successful in forcing Mr Xi’s lead negotiator, vice-premier Liu He, to make meaningful changes to China’s unique “state capitalism” development model? Or will Mr Lighthizer’s offence prove less formidable than Mr Liu’s defence? 

READ: Optimism that US, China have much at stake and will reach a trade deal may be short-lived, a commentary

All indications are that Mr Liu is offering a lot less than Mr Lighthizer would like, but Mr Trump is inclined to accept a deal regardless.


US multinationals would be disappointed by this because, after deciding to use the “nuclear option” of tariffs, Mr Trump would have come up short on the trade issues that matter the most to them.

But they will keep quiet about it because they fear a disappointing deal much less than the alternative: More and higher tariffs affecting all goods trade between the two countries as the trade war grinds on. 

Donald Trump
In this file photo taken on Feb 22, 2019, US President Donald Trump watches as China's Vice Premier Liu He (left) speaks with US Trade Representative Robert Lighthizer (right) in the Oval Office. (Photo: AFP/MANDEL NGAN)

Perhaps US companies’ biggest disappointment is that the trade deal taking shape, according to people briefed on the negotiations, will be very similar to the bilateral investment treaty the Obama administration was close to reaching in late 2016.

As imperfect as the Obama treaty may have been, it was supposed to coincide with the launch of the TPP, joining the US and 11 other Pacific nations but excluding China.

The strategic challenge posed by the TPP, its backers believe, would have been a far more effective way of convincing Beijing to embrace substantive financial and economic reforms than trying to bludgeon a fiercely nationalistic regime into submission with tariffs. 

READ: The TPP deal that almost wasn’t, a commentary

Instead, Mr Trump withdrew from the TPP and US business is counting the cost in terms of lost market share in Japan.

For US multinationals, the leverage Mr Trump has been seeking over China through tariffs was there all along in the form of the TPP. But sadly for them, he threw it away. 

Source: Financial Times/sl