This article appears in the Spring 2019 issue of The American Prospect magazine. Subscribe here.
Ever since China was admitted to the World Trade Organization in 2001, the trade imbalance between the United States and China has become ever more lopsided. In 2001, the deficit stood at $83 billion. In 2017, it reached $375 billion. Rather than moving toward a more open economy, as enthusiasts of WTO membership predicted, China has intensified its policies of state-led capitalism and protectionism. Combined with its outright technology theft, these policies have enabled China to achieve domination in industry after industry, with grave economic and geopolitical consequences for the U.S.
Robert Lighthizer, the U.S. trade representative, aims to change that. He is dead serious about using America's economic and political leverage to reset the U.S.-China relationship. An anomaly among Trump's appointees, Lighthizer is deeply knowledgeable about his subject, strategically clear about his goals, and tactically astute as a negotiator. And unlike his last four predecessors as USTR, Lighthizer unabashedly embraces a salutary brand of nationalism. To use a very old-fashioned word, Lighthizer is a patriot, someone who truly cares about whether U.S. industry endures—and a far more serious man than his boss.
There's only one person who can undermine what Light-hizer is trying to achieve. That would be Donald Trump. Why? Because Trump is looking for a quick deal that gives him bragging rights, while Lighthizer is playing a long game for systemic change.
After Trump waived his own March 1 deadline for a major increase in tariffs on Chinese goods absent a major agreement, he sounded more and more bullish about the prospects of an imminent deal, issuing tweets on the great progress that has been made. On February 25, Trump crowed to a White House gathering of the nation’s governors that “we’re going to have another summit, we’re going to have a signing summit, which is even better, so hopefully we can get that completed, but we’re getting very, very close.”
The more Trump trumpeted success before progress had been agreed to, the more he invited the Chinese to harden their line, and the more he undercut his own negotiators. In reality, the deal that was on the table in early March, when Beijing insisted on delaying the signing ceremony several weeks pending further talks, was far from adequate. China had sought to sucker-punch Trump by offering to purchase a lot more stuff—soybeans, beef, chickens, natural gas, semiconductors—but not to make changes in China's mercantilist system of state support for its own industries.
You can understand the appeal of a deal. If Trump and China's President Xi Jinping can announce an agreement consisting of specific commitments to purchase lots more U.S. products, plus some vague, easily evaded promises to reduce aspects of Chinese mercantilism, it will produce several tactical wins for the president. First, it will divert attention from Trump's other woes. Second, there will be favorable headlines that Trump has come to his senses on tariffs and avoided a “trade war” with China. Going into an election year, the farm lobby and farm-belt voters will be relieved and grateful. So will the large segment of American corporations and banks that profit from the status quo. The Dow will jump several hundred points, reflecting both general approval and the prospect of increased exports and profits. Best of all, the deal will be announced at Mar-a-Lago, with a smiling Xi at Trump's side.
And China's system will not change at all.
Should all that happen, it will be a stunning defeat for the man who is probably Trump's most competent and conscientious appointee. To date, says China journalist and scholar James Mann,
“Lighthizer has been the driving force in persuading Trump not to take deals that would generate headlines but not alter China's system.”
Given China's hard line and Trump's eagerness for a deal, it will take something close to a miracle for Lighthizer to prevail.
ROBERT LIGHTHIZER WAS BORN in 1947, in Ashtabula, Ohio, where he watched the steel industry slowly vanish from the American Midwest of his boyhood. He attended college and law school at Georgetown, practiced law at the blue-chip firm Covington and Burling, and then served as trade counsel and later chief of staff to the Senate Finance Committee under the chairmanship of Kansas Republican Robert Dole. In 1983, President Reagan appointed Lighthizer to be deputy U.S. trade representative, where he became one of the administration’s two notable trade hawks, along with Clyde Prestowitz, whose title was counselor to the Secretary of Commerce.
In those years, the main Asian mercantilist threat to U.S. industry came from Japan (whose model China was to adapt and intensify). At first, Reagan's negotiators attempted to persuade the Japanese to operate their economy more in the U.S. image, with transparent prices and open markets. With great fanfare, negotiators announced an initiative called the MOSS Talks, for Market-Oriented Sector-Selective. It soon became evident that the Japanese were masters of evasion and indirection. The joke became that MOSS stood for More Of the Same Stuff. As it became clear that Japan was not about to open its markets, Lighthizer and Prestowitz reluctantly settled for a series of second-bests. These included ad hoc deals for “voluntary restraint” of Japanese exports such as steel, autos, and semiconductors, as well as some selective reduction of Japan's barriers to imports. If anything, what Lighthizer achieved with Japan is a lot better than the deal that's on the table with China.
“Bob helped author the approach of negotiating results-oriented trade agreements that set specific metrics on whether Japan was abiding by its promises and ensuring that swift and sure retaliation would occur if Japan broke its promises,” says Michael Wessel, one of the Democratic members of the U.S.-China Commission. “That's the same approach we should be taking with China.” (The independent commission, created by Congress in 2000, has functioned as a kind of loyal opposition to the conventional wisdom about China.) Those Japan deals did produce some gains, but their failure to fundamentally alter Japan's national system was seared into Lighthizer's consciousness, and was good preparation for his role today as America's lead China negotiator.
Japan, moreover, was and is a democracy, with no global hegemonic ambitions. For much of the past quarter-century, Japan's economy has been bogged down in a deflationary spiral, though its manufacturing export sector is as strong as ever. China is a whole other story. And, as Prestowitz observes, Japan was also a national-security client of the U.S., providing the U.S. with some pressure points. Not so China.
AP Photo/Jacquelyn Martin
After working for Reagan, Lighthizer returned to private legal practice in 1985, specializing in trade cases, mainly representing U.S. companies whose businesses have been harmed by the protectionist policies of other nations, notably China. In representing scores of companies directly damaged by that nation's state subsidies, dumping, technology theft, preferential cartels, and other aspects of mercantilism, and filing appeals of those practices to agencies such as the Commerce Department, Lighthizer gained an up-close look at just how Chinese mercantilism operates—and the limits of the usual U.S. tools to counter it.
That experience has proved invaluable. Prestowitz says: “Think of Cool Hand Luke when you consider Bob Lighthizer in a trade negotiation. He knows the trade laws, the history of the trade organizations, the key trade cases, the major players in virtually all countries, cold. He doesn't get excited. Doesn't lose his temper, but can be impatient with nonsense from his negotiating partner. In short, he's a pro's pro.
“Always remember that before China there were Japan and Korea who followed policies similar to those of China today. Bob knows they and we are not playing the same game. We're playing tennis and they are playing football. He is bound and determined that we put on some helmets and pads.”
Out of government, Lighthizer was one of the key informed critics of U.S. China policy, regularly testifying, giving speeches, and writing op-eds, as well as litigating on behalf of U.S. companies that bore the brunt of China's policies. On the eve of the tenth anniversary of China's accession to the WTO, in 2010, Lighthizer presented encyclopedic testimony to the U.S.-China Commission, detailing every aspect of Chinese mercantilism and American wishful thinking. Lighthizer concluded: “The optimistic promises made at the time Congress approved PNTR [Permanent Normal Trade Relations with China] have not been fulfilled. Years of passivity and drift among U.S. policymakers have allowed the U.S.-China trade deficit to grow to the point where [it] is widely recognized as a major threat to our economy. Going forward, U.S. policymakers should take these problems more seriously, and should take a much more aggressive approach in dealing with China.”
For the past two decades, Lighthizer was a voice in the wilderness. His 2010 report read like an audition piece for some future President Trump. And in Trump, he found an improbable champion. It is a little embarrassing for progressives to credit Donald Trump for doing even one thing right, in this case ostensibly pursuing the serious China policy that has eluded the last several presidents. But the final chapter is yet to be written, and Trump is a long way from success.
Until Trump, U.S. China policy was wishful. Though China repeatedly held down the value of its currency in order to artificially boost exports, since 1994 no president has officially designated China a currency manipulator, which would have triggered retaliation under U.S. trade law. Though the Trade Act of 1974 does include a variety of remedies, including retaliatory tariffs when other countries' governments subsidize industries and dump their export products at below-market prices, prior administrations mostly refrained from using them, because the U.S. was selling the ideal of liberal trade.
As critics of U.S. trade policy have long argued, drastic changes were needed. Trump, in his intuitive and feral fashion, grasped the music. It fell to Lighthizer to provide the words. But
Trump may yet demonstrate that even on China, what appears to be a propitious convergence of goals is just another fake.
To be serious, a revised trade policy would need to be married to a series of industrial policies. The goal should be not just to improve the trade balance but also to revive American industry and safeguard it from China's improper grabs of market share via subsidies and dumping. Trump has done nothing on that front.
Lighthizer's reality-based China policy stands in marked contrast to Trump's delusional, blowhard, and self-defeating policies nearly everywhere else—from Iran to Syria to Saudi Arabia, and from Russia, Korea, and Germany to Hungary and Poland. Indeed, our China diplomacy is made more difficult because Trump's ad hoc affronts to the European Union have removed one crucial ally that the U.S. sorely needs in its China policy. If Trump does end up undercutting Lighthizer for a deal that produces cheap headlines and no fundamental changes, it will be of a piece with Trump's diplomacy elsewhere in the world.
DONALD TRUMP'S ASCENSION to the presidency left Beijing bewildered. Since the Clinton administration, the Chinese government has known exactly how to play Washington: make token concessions while buying off key industries and notables, so that proponents of a harder line would be dismissed as protectionist “China-bashers.” But it was not at all clear to the Chinese what Trump wanted from Beijing, or how to play him. The fact that Trump kept changing his rhetoric and demands created further puzzlement on the part of the Chinese. Did these shifts represent a higher order of deceptive tactical brilliance, or just incoherence?
The Chinese pursued a two-part strategy. First, knowing Trump's personal corruptibility, they sought ways to buy him, either directly or though members of his family. Trump got expedited trademark approval for sales in China of Ivanka's product lines. Chinese officials spent great effort cultivating Jared Kushner, whose family's company has Chinese real-estate connections. In May 2017, Kushner's sister, Nicole Meyer, made a pitch to more than 100 prospective Chinese investors at the Ritz-Carlton Hotel in Beijing for $150 million in financing on behalf of the Kushner Companies for a proposed Jersey City housing development known as One Journal Square.
It was only after Lighthizer and national-security officials leaned hard on the president, and additional details of Jared and his family's China plans were leaked by hard-liners to The New York Times, that Trump personally shut down this back channel and kept “Javanka” far away from China diplomacy. A planned second trip by Jared was prudently killed, and the Chinese financing of the Jersey City deal was abandoned.
The other Chinese strategy, as noted, has been to see whether Trump could be induced to relent in exchange for promises to buy ever-increasing amounts of stuff. When Treasury Secretary Steven Mnuchin met with them in May 2017, Chinese officials offered just that sort of deal: more access for exports of U.S. beef and chicken, as well as some credit card services, in exchange for the U.S. abandoning tariffs and other demands. Mnuchin put out the word that the U.S. had an agreement. Lighthizer, national-security officials, and White House economist and trade adviser Peter Navarro strenuously resisted.
For more than a year, Mnuchin and the hard-liners have skirmished over whether to accept a deal that would include no fundamental changes in China's system.
At one fraught meeting, in May 2018, Navarro and Mnuchin got into a screaming and cursing match after Navarro learned that Mnuchin had secretly arranged a private high-level meeting with his Chinese counterpart, excluding other members of the U.S. delegation.
But Trump refused to take the deals promoted by Mnuchin and the Chinese, instead doubling down and increasing the pressure on China. On July 6, 2018, Trump imposed tariffs of 25 percent on 818 categories of goods imported from China, worth $34 billion, as retaliation for Chinese theft of U.S. intellectual property under Sec. 301 of the Trade Act of 1974. It is standard practice for the Chinese government to coerce American companies seeking to do business in China to transfer trade secrets to Chinese “partners.” China also ignores patents and steals technology outright. The stakes were further raised when Trump set a deadline of March 1, 2019, for a broader trade deal, or tariffs would increase from 10 percent to 25 percent on $200 billion worth of Chinese goods.
This grand strategy is largely Lighthizer's work.
THERE IS AN OLD SAYING that even a stopped clock is right twice a day. Lighthizer marks the rare case of Trump both stumbling into a better policy than that of his predecessors, and hiring the right person to carry it out. In the 2016 campaign, Trump seized on economic nationalism as a theme that tapped into the frustrations of blue-collar workers that good jobs were moving offshore and that Democrats like Hillary Clinton seemed to care more about Davos than Dubuque, and more about the rights of Mexican immigrants than about white Americans. Economic nationalism, as defined by Trump, served both to racialize the campaign and to create a faux-populism that camouflaged the extent to which Trump was actually a garden-variety corporate Republican on nearly every other issue, from taxes to deregulation to union-bashing.
But having associated himself with economic nationalism in the campaign, Trump in office needed to define and execute it. After a few purely symbolic forays at places like the Carrier plant in Indiana, where he used threats and slogans to keep a tiny number of manufacturing jobs from moving south of the border, Trump turned to NAFTA. This was part of his larger ploy of demonizing Mexico and humiliating Canada for good measure.
The NAFTA negotiations sucked out a huge amount of oxygen and consumed extensive time and energy away from the more existential challenge posed by China. When his negotiators finally brought home a revised NAFTA deal, it included only minimal changes, some of them not for the better. Absent changes on the particulars, this deal is likely to be rejected by the Democratic House.
With his China policy, however, Trump hit pay dirt. China's mercantilist system, as well as specific abuses such as cyber theft and the pilfering of trade secrets, really does cry out for a muscular U.S. response. Trump also hit pay dirt when he hired Lighthizer. The two men had not known each other, but to the economic nationalists around Trump, including Dan DiMicco, former president of Nucor Steel and Trump's trade adviser in the campaign, who knew Lighthizer from several cases protesting China's dumping of low-cost, state-subsidized steel on the U.S. and world markets, Lighthizer was the natural pick.
AP Photo/Evan Vucci
After a few purely symbolic forays at places like the Carrier plant in Indiana, where he used threats and slogans to keep a tiny number of manufacturing jobs from moving south of the border, Trump turned to NAFTA. Here, people watch as Trump arrives at the Carrier plant during the 2016 campaign.
James Mann observes, “Trump's is the first U.S. administration that wants something from China that's about China itself and its own economic system, not about other things like help with the Cold War or climate change.”
As Mann explains it, under Richard Nixon and Henry Kissinger, the U.S. wanted a closer relationship with China as a counterweight to the USSR. Under Bill Clinton, we assumed that changes in China's internal economic and political systems would logically follow if we let them into the WTO, so Clinton put aside concerns about human-rights abuses in China. Under George W. Bush, we needed China's acquiescence in the U.N. Security Council to our Iraq invasion. Under Obama, the main thing we wanted from China was some progress on climate—and our main trade goal for the region, the aborted TPP, did not address China's own predatory trade practices. China has been brilliant at giving the U.S. some of the things that Washington asks for that do not affect its economic or political system.
EVER SINCE THE U.S. WELCOMED China into the World Trade Organization in 2001, based on Beijing’s vague promises to behave like a normal market economy, China has been taking advantage of America’s naïve belief that more trade would somehow transform China into a liberal and democratic market economy. Naïvetéis probably too kind a characterization of the posture of U.S. corporate, financial, and political elites: Willful blindness is more accurate. While some American manufacturing companies were mightily upset at being displaced by Chinese firms, many others were content to move operations to China, where wages were low, workers repressed, and billion-dollar construction subsidies were on offer for the factories they sought to build. The financial industry was not able to operate freely inside China, but was bought off by being able to make billions brokering deals. So Wall Street was a passionate backer of the status quo, too.
In the 1990s, when China was pressing for admission to the WTOon terms that would still allow it to subsidize and protect its domestic industry as a “developing country,” Beijing was playing a weak diplomatic hand. China was in ill repute from the 1989 massacre at Tiananmen Square. In its key industries, productivity levels lagged those of the West, and China was far from fully competitive.
In Clinton, China faced an American president who had campaigned on human rights. Clinton took office insisting that China had to improve its human-rights record before being admitted to the WTO. Once in office, however, Clinton succumbed to business pressure to get access to China's market of 1.2 billion people. Clinton's story line became that China's WTO membership would inevitably lead to more liberalization, both politically and economically.
Having secured its coveted WTO membership, China then ignored its vague commitments to liberalize. Instead, Beijing went right on building a toweringly successful mercantilist economy and, under Xi, ratcheting up its dictatorship. Its practices were hidden in plain view. They are spelled out in the voluminous annual reports of the U.S.-China Commission, and in the annual reports of the Office of the U.S. Trade Representative, in countless complaints filed by American companies, and in a growing library of books that persuasively challenge the conventional wisdom.
Today, 17 years into China's WTO membership and commitments to liberalize, all of its major industries are either owned or directed by the government, which is to say the Communist Party.
State-owned or -controlled enterprises get cheap or free capital—sometimes outright grants, sometimes loans at below-market or negative interest rates, often both. The state doesn't care whether these enterprises lose money for a long time so long as they create, borrow, or steal key technologies and gain global market share. China imports only what it needs—mostly food, raw materials, and some advanced capital goods, but not products that would compete with its own domestic producers and grand plan.
China steals technology from the West, either by copying and reverse-engineering it, or by requiring coercive “partnerships” with Western companies that seek to do business in China. In a typical deal, the American company is attracted by subsidies to build plants and by cheap labor. But in return, the company must agree to produce only for export back to the West, and to share its advanced technology with a Chinese partner whose goal is to overtake and displace the Western rival over time. China's immense trade surpluses with the West are augmented by its practices of currency manipulation, but this is secondary. What's primary is China's entire system of state-led mercantilism.
The rise of China is an unmistakable geoeconomic, geopolitical, and ideological threat to the United States. Yet four presidents, two Republicans and two Democrats, from George H.W. Bush through Barack Obama, indulged Beijing. To American elites, the U.S. is selling the world a system of free-market capitalism. To resort to measures like tariffs, even as leverage against countries that routinely violate the norms and rules of market capitalism, would somehow be “protectionist.” Moreover, markets should dictate the location of global production—never mind that China's capture of global market share is far from a free-market verdict. Therefore, to care about whether U.S.-based companies produce domestically, except on the narrowest of national-security grounds, is to practice odious economic nationalism, a habit that we are seeking to dissuade other nations from indulging. And just to reinforce this self-annihilating set of syllogisms, scores of former top U.S. trade and diplomatic officials, as well as scholars, have lucrative consulting arrangements with the Chinese, and can be counted upon to lecture on the dangers of protectionism and China-bashing.
The mainstream press also got China completely wrong, and for the most part, it still does. One big mistake was to assume that partial economic opening would inexorably lead to political pluralism. In The New York Times, Nicholas Kristof wrote in 2004 that “after the Chinese could watch Eddie Murphy, wear tight pink dresses and struggle over what to order at Starbucks, the revolution was finished. No middle class is content with more choices of coffees than of candidates on a ballot.”
The more recent mistake of much press coverage has been to confuse tactics with goals. A standard news story might be summarized as, Oh My God, Tariffs! In general, the hard line taken by Lighthizer and Trump has gotten a hostile press.
While establishment China scholars are now in a mood of revise and repent, they continue to resist the kind of aggressive diplomacy that would make a real difference—perhaps because its instigator is Donald Trump. Last March in Foreign Affairs, the bible of the foreign-policy elite, Kurt Campbell, assistant secretary of state for East Asian and Pacific Affairs under Obama, wrote a kind of nostra culpa piece with Ely Ratner titled “The China Reckoning,” admitting that “the assumptions driving U.S. China policy look increasingly tenuous.” Yet the piece went on to warn against Trump’s approach, which risks “being confrontational without being competitive.”
AP Photo/Donald Stampfli
Ever since the U.S. welcomed China into the World Trade Organization in 2001, China has been taking advantage of America’s naïve belief that more trade would somehow transform China into a liberal and democratic market economy. Here, Chinese officials await the opening of the WTO's general council meeting in Geneva in December 2001.
One amusing and instructive misinterpretation occurred when Trump, with Lighthizer by his side, called in the press and the cameras on February 22, to discuss progress on the China negotiations. At one point, with China's top trade negotiator, Vice Premier Liu He, looking on, Trump directed Lighthizer not to settle for a mere “memorandum of understanding” in any China deal, but to insist on a binding contract. Lighthizer explained to his boss that in trade law, a memorandum of understanding is a contract. To most of the media, the takeaway was that Trump was an idiot, both for having this conversation in front of both the press and the chief Chinese negotiator and for misunderstanding the terminology. But in Trump’s world of real-estate deals, such memoranda are far from binding and easily evaded. In context, Trump was posturing tough, telling his negotiator not to get rolled. To the extent that Trump really meant it, he had learned well from Lighthizer. With Trump, of course, you never know.
As we go to press, Lighthizer seems to have walked Trump off the ledge yet again. But absent much firmer pressures from the U.S., the Chinese will resist the fundamental changes that make a deal worthwhile, and a signing ceremony for the wrong sort of deal beckons. The U.S. has more cards than it likes to admit, but Trump has played his hand badly.
Beyond the challenge of Chinese mercantilism at U.S. expense, Washington has yet to reckon with Beijing's increasing power on the world stage. While U.S.-backed multilateral agencies such as the World Bank and the International Monetary Fund offer development financing and fiscal assistance in exchange for an embrace of neoliberal policies, China is offering a very different sort of devil's bargain under its One Belt One Road project. Third World countries can get massive aid for infrastructure projects from Beijing. In exchange, China gets to exploit their mineral resources; and if the project goes bad, the client country is responsible for paying back the loans. The environmental conditions are often deplorable and most of the jobs go to Chinese work crews. Yet the scale of investment dwarfs anything the West is offering, and poor countries find it hard not to take the deal. Beijing has announced that the second annual One Belt One Road summit, in late April, expects about 40 heads of state to attend.
The U.S. needs a policy that is one part containment and one part modus vivendi with China, as well as one part more serious engagement with developing nations, so that they have other possible geo-economic partners than Beijing. The Obama administration's defunct Trans-Pacific Partnership was a pitiful response—and on the global front, Trump is offering nothing at all.
NEGOTIATING WITH CHINA recalls the famous serenity prayer of Alcoholics Anonymous: God, grant me the serenity to accept the things that I cannot change, the courage to change the things I can, and the wisdom to know the difference.
Some aspects of China's economic system are purely China's affair.
American pressure cannot change these elements, and probably should not try. If China wants to have a system of state-led capitalism, with subsidies and industrial policies, that is China's business. The system has succeeded in generating rates of economic growth at a scale unmatched in the history of the world, and is responsible for relieving hundreds of millions of people of extreme poverty. The problem comes when those subsidies are used for export to displace other producers in other countries.
If the U.S. disdains industrial policies, while China targets the next generation of advanced technology under its Made in China 2025 program, from artificial intelligence to 5G broadband, China's resulting dominance will be mainly the result of America's own stupidity. Real U.S. national (and working- and middle-class) security requires that we define cutting-edge technologies broadly, rather than narrowly in military terms. And we should make sure China does not get an unfair leg up by purchasing American advanced-technology companies, or placing state-controlled companies like ZTE or Huawei in the heart of America's communications infrastructure. Alas, Trump's continued affronts to America's allies have made them unreceptive to demands that they keep Huawei out of their telecom infrastructure, and Trump himself has hinted that he might go easier on ZTE as part of a grand bargain. It is these mixed signals that undermine Trump's ability to achieve his stated goals, and play into Beijing's hands.
China has the right to its own model, but the model becomes problematic when its mercantilism includes theft, commercial espionage, and disdain for intellectual-property rights, and results in the displacement of entire U.S. industries through tactics that are illegal under the WTO, or should be. Former Missouri Senator Jim Talent, one of the Republicans on the U.S.-China Commission, told me, “We thought that by letting them into the world trading system, we would change them. But they've changed the system. The WTO tools are inadequate to deal with an economy like China. The WTO presumes that a major actor is not actively trying to subvert the entire system.”
If the WTO is an inadequate venue of redress, then the U.S. is entirely within its rights to pursue unilateral remedies in search of some kind of modus vivendi with Beijing. Before he rejoined the government, Lighthizer called for unilateral measures to protect American interests, even if they are inconsistent with WTO commitments (which China repeatedly ignores anyway). “WTO commitments are not religious obligations,” he told the U.S.-China Commission, and “do not (and should not be construed to) impinge upon national sovereignty, and are not subject to coercion by some WTO police force.”
The U.S. has the power to prevent China from buying strategically important companies, which we have used intermittently through CFIUS, the Committee on Foreign Investment in the United States. We have the power to create our own industrial policies, and to strengthen “buy American” requirements when investments are the fruits of U.S. taxes or public debt. Former Virginia Senator Jim Webb introduced a bill to prohibit American companies from transferring to Chinese “partners” technologies created thanks to government contracts or R&D. The U.S.-China Trade Commission has called for a mandatory reporting system for all technology transferred to China.
Lighthizer has also raised the possibility of using tariffs not just as bargaining counters, but to offset the overall impact of China's mercantilist system. “At some point, however,” he told the commission, “where goods imports from China exceed $300 billion while U.S. exports to China are below $70 billion—one must ask whether potential retaliation from China really would or could even remotely offset the benefits to the United States of more aggressive trade measures.” Advocating a policy that runs counter to those of every other recent administration, Lighthizer has also called for China to be formally designated as a currency manipulator, which would permit the levying of still other offsetting (“countervailing”) tariffs.
AP Photo/Mark Schiefelbein, File
Testifying before the House Ways and Means Committee in late February, Lighthizer walked a tightrope between professing loyalty to Trump and insisting that the China deal was far from done. “Much needs to be done both before an agreement is reached, and more importantly, after it is reached, if it is reached.” In testimony before the Senate Finance Committee on March 7, he took an even harder line, reserving the right to impose tariffs “in situations where there’s violations of the agreement.”
But the agreement itself could be the problem. As a key element, Lighthizer and leaks by the Chinese have described a complex system of multi-tiered consultations to resolve complaints of violations of the deal—on a monthly basis with lower-level officials from both countries, then quarterly with more senior officials, and finally every six months with Lighthizer and China's vice premier and special envoy on trade, Liu He. Critics dismiss this jerry-built proposal for ad hoc complaint and response as only the latest version of whack-a-mole. In the absence of binding commitments for structural change, this system could easily turn into MOSS—more of the same stuff.
There is also the more subtle problem of a deal that could improve the terms of engagement and profitability for U.S. companies that produce in China (more access, less outright theft of trade secrets by Chinese “partners”), but do little or nothing for U.S.-based producers and their workers looking to export to China. In recent testimony to the U.S.-China Commission, the China scholar Mary Lovely reported that 46 percent of all Chinese exports are from foreign-owned enterprises, as are 60 percent of all exports to the U.S. In other words, China relies on U.S. capital and U.S. companies (which are mostly prohibited from selling into the domestic Chinese market) to produce for export back to the U.S. The industrial policy expert Harley Shaiken terms this system “industrial tourism”—U.S. capital goes to China, where it underwrites production by very-low-wage workers who make things for sale back in the U.S.
Psychotherapists often counsel patients that you can't change someone else's behavior, only your own; by doing that, you alter the system. The same might be said of trade diplomacy. With the multilateral WTO next to useless except as a forum for pressure, with Trump at odds with America's natural allies, and with China resisting making concessions in two-way talks, some unilateral policies make sense in their own right. We are not going to change China's entire economic model, but that model does not require cyber theft. It does not require coercive terms for Western companies to operate within China. It's also reasonable for the U.S. to demand a set of trading practices that takes into account and offsets China's extensive strategies of state subsidies and selling below cost that are counter to norms of liberal trade. The use of tariffs to counterbalance such policies is both reasonable and sensible.
The risk of the wrong sort of deal with China is twofold. First, China's nominal commitments to revise some mercantilist practices can and will be easily evaded, as they have been ever since China was let into the WTO. The more serious risk is that in exchange for China's agreements to import more products, the U.S. may swear off the use of unilateral measures that could really make a difference by insulating our economy from China's predatory practices.
Under Lighthizer's predecessors, most of whom were lobbyists or investment bankers, USTR reports on China read like exercises in gentle persuasion: We thank China for making some progress. Now, could China please make some more progress? Under Lighthizer, they read like indictments.
With tough and creative diplomacy, it is possible both to allow China its own development model and to prevent China from breaking the rules and thriving at America's expense. Lighthizer has the wisdom and courage to pursue such policies. Whether his boss does remains to be seen. By denouncing and disrupting America's previous China policy, Trump, however ineptly and incompletely, has opened the door to a better policy. But its execution will fall to the next administration. In the meantime, Lighthizer's main challenge is to limit the damage—both from China and from Trump.
