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The China Impasse

01/05/2019

Negotiations have recommenced between the U.S. and China to resolve the trade war that has raised the cost of imported goods and disrupted the sourcing and supply of ingredients worldwide, adversely impacting U.S. farmers. The actions initiated by the U.S are apparently hurting the economy of China, so both sides have an incentive to reach an accommodation.

 

Negotiations have recommenced between the U.S. and China to resolve the trade war that has raised the cost of imported goods and disrupted the sourcing and supply of ingredients worldwide, adversely impacting U.S. farmers. The actions initiated by the U.S are apparently hurting the economy of China, so both sides have an incentive to reach an accommodation.

 

Simply agreeing to rescind mutually destructive tariffs would in itself represent an accomplishment by restoring trade to a pre-June 2018 status. This will not address the underlying structural issues that represent the intent by China to advance their economy at the expense of the U.S., the EU and nations subjected to neo-colonialism in Africa. For two decades China has advanced a program of State-sponsored actions to achieve the Made in China 2025 objective. Authorized policies include government support of quasi-independent industries dumping products on world markets; coercive joint-venture agreements with foreign manufacturers to share proprietary technology and ignoring established rules relating to intellectual property. More recently aggressive hacking of databases and company information by state agencies has escalated representing overt commercial espionage.

 

The recent action by the Administration to oppose the policies of China is not merely an expression of America-first unilateralists. The Economist published a commentary in the December 15th edition under the heading of Chaguan (literally a tea-house for discourse- named for the eponymous capital of Sichuan Province) that emphasizes the effect of China policy on other industrialized nations. The article notes that placating or cajoling the errant nation over two decades and hoping for a change have been disappointing. China recognized that the openness of the West and their reliance on the World Trade Organization and United Nations agencies was a vulnerability to be exploited to their advantage. The Economist refers to now disillusioned internationalists as “unhappy ex-doves reading intelligence reports”.

 

Our negotiators clearly appreciate the apparent challenge of rescinding bilateral tariffs, representing the easy part, but they also have an appreciation of the underlying structural imperatives motivating China. It is difficult to envisage how the U.S. team will reverse entrenched policies imbued in a generation of bureaucrats intent on maintaining growth by any means possible. Even in two months with the clock ticking. There is concern that a Band-Aid will be placed over tariffs and negotiators will talk past each other and avoid the deeper issues or accept insincere offers to reform.  

 

Hopefully the negotiations will reverse the immediate trade issues and restore exports of U.S. farm commodities to China. Certainly the slowdown in economic growth in China implies an incentive to make concessions. It would however have been beneficial not to have alienated our traditional allies since a concerted and coordinated response to the underlying policies pursued by China would be more effective than a unilateral approach.