In a recent interview with the FT, President Trump had this to say about the existing U.S. trade relationship with China:
How do you bring China’s trade surplus down quickly?
By telling China that we cannot continue to trade if we are going to have an unfair deal like we have right now. This is an unfair deal.
If the existing trade arrangements with China (based on WTO rules) are unfair, shouldn't we negotiate a new trade deal with China? My colleague Huan Zhu and I make the case for a bilateral trade negotiation with China in a Cato paper published today. This is from the introduction:
When China completed its 15-year accession process and joined the World Trade Organization (WTO) in 2001, it was a rising power, but still clearly a developing country. Its GDP per capita was $3,227, and its share of global trade was only 4 percent.
By 2015, however, its GDP per capita had risen to $14,450, and its global trade share to 11.9 percent. As China’s economic power has increased, so has criticism of its market-distorting economic practices. The U.S. government has brought international trade complaints against China and used unilateral actions and threats, but U.S. businesses are unsatisfied with the results. While there have been some successes, the limits of the current approach to making China’s economy more market-oriented may have been reached, as there are gaps in the existing international trade rules, and unilateral demands are of limited value against a powerful trading partner with its own domestic politics to contend with. Moreover, in the current political climate, an overly aggressive approach runs the risk of a serious U.S.-China trade war, which would cause great harm to both sides.
But there is another option. If the United States wants to promote the liberalization of Chinese trade and investment policy, it needs to engage with China in a more positive way. To this end, it should sit down with China and negotiate a new economic relationship, one that goes beyond the terms of the WTO. In particular, the United States should initiate formal negotiations on a trade agreement with China. Negotiations of this kind will be a challenge, especially with a president who has been so critical of China. However, negotiations offer the best hope for addressing concerns about China’s economic policies and practices.
The paper is not that long, but if you want a shorter version of the argument, see our op-ed here. If you don't feel like clicking on anything, here are some of the key points:
-- There are limits to what threats, unilateral actions, high-level dialogues, and WTO litigation can accomplish. If the U.S. wants to address Chinese trade and investment barriers, such as high tariffs, SOEs or intellectual property, the best approach would be to negotiate a comprehensive trade agreement with China.
-- The U.S. will have to make some concessions too (maybe on the NME methodology).
-- Obviously, such a negotiation will be controversial and difficult. But if both sides were committed, maybe it could be accomplished. (Australia and New Zealand have already done it; Canada has an investment agreement with China, and is exploring trade talks).
-- I don't know if there is any chance that the Trump administration will be open to this. If they are not, the task of negotiating with China to reduce these barriers will be passed on to a future administration.