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Changing China’s trade practices requires collective action

The U.S. should push for systemic reform that will benefit its economic interests more broadly, as well as allies, writes Daniel M. Price.

The U.S. trade investigation into Chinese trade, recently completed under Section 301 of the 1974 Trade Act, detailed China’s unfair practices, which harm a broad swath of U.S. companies. It documented longstanding concerns that China’s state-directed model of economic development, much of which is not covered by global trade rules, prevents U.S. companies from competing on a level playing field.

The investigation shows that the administration is right to seek changes to China’s trade and investment regime. But the President’s primary stated goal to date has been for China to reduce its trade surplus – his principal metric for “fair trade”.

Reducing our trade deficit with China through the purchase of a few big ticket products may allow President Trump to declare a political victory, but that “victory” will be hollow and short-lived. Nothing meaningful will have been accomplished to address persistent market access barriers and discriminatory practices – or even to rebalance trade in a sustainable way.

The findings of the Section 301 process should be used by the administration to negotiate real reforms, including eliminating restrictions on foreign ownership, forced technology transfers and other intellectual property rights violations and market-distorting subsidies.

This is consistent with the purpose of Section 301, and is the correct approach if the U.S. wishes to enlist the support of our allies, who fully share our concerns about China’s predatory commercial practices.

One-off purchases by China to temporarily reduce the trade deficit may benefit some but not all U.S. exporters, and would come at the expense of allies. By contrast, insisting on systemic reform will benefit U.S. economic interests more broadly, as well as those of countries whose cooperation we need.

Regrettably, the administration hamstrung its ability to rally allies by claiming (wrongly, according to the U.S. secretary of Defense) that national security considerations under Section 232 [of the 1962 Trade Expansion Act] required imposing steel and aluminum tariffs on them.

The administration quickly made clear that exemptions from these tariffs would be on offer to those counties willing to negotiate sector-specific trade deficit-reducing measures.

By invoking national security for what the president has subsequently shown was pure protectionism, the administration has invited and largely substantiated a challenge at the World Trade Organization (WTO).

The more immediate casualty from the 232 action is the U.S. ability to lead collective action against China’s trade practices. Instead of holding friendly trading partners hostage in order to secure bilateral concessions, the administration should unconditionally exempt them from the steel and aluminum tariffs and seek their cooperation on China.

A united front will prevent China from playing our allies off against us, and will reinforce the verdict of the rest of the world that is China’s actions – not those of the United States – that constitute the preeminent threat to global trade and must change.

The U.S. administration has an opportunity to lead a coalition of like-minded countries in addressing the challenge China poses to the global trading system. But it must abandon its opportunistic adventurism against our allies and assure them that the victory it seeks against China will be enduring and benefit all.

Daniel M. Price is Managing Director at Rock Creek Global Advisors, an international economic policy advisory firm. He previously served as International Economic Affairs advisor to President George W. Bush.

A longer version of this article was originally published on U.S political website The Hill on 02 April 2018 under the title: “Trade war and peace: Policies should unite allies, make lasting reforms”.