Trump, a global loner, finds his China trade war complaints draw a crowd


After almost a year of going it alone, President Trump finds himself with a surprising weapon in his trade confrontation with China: allies.

Pressure from Europe and Japan is amplifying the president’s vocal complaints about Chinese trade practices that he says discriminate against foreign companies and threaten U.S. economic growth — as fresh economic data Friday in Beijing showed the economy slowing more than expected.

To eliminate one major irritant, Chinese leaders already have begun scaling back an industrial policy aimed at dominating 10 technology industries, after concluding the president’s objections were widely shared and could not be resolved merely by waiting out the mercurial U.S. leader.

“One thing the Chinese have had to acknowledge is that it wasn’t a Trump issue; it was a world issue,” said Jorge Guajardo, senior director at McLarty Associates and a former Mexican ambassador to China. “Everybody’s tired of the way China games the trading system and makes promises that never amount to anything.”

Administration officials say Trump deserves credit for driving a harder line toward Beijing at home and abroad. Attacking Chinese protectionism now has bipartisan support in Washington; Germany and the United Kingdom joined the United States this year in tightening limits on Chinese investment.

But critics say the president has not done enough to capi­tal­ize on those shared grievances, instead alienating European and Japanese officials this year by imposing tariffs on their shipments to the United States of steel and aluminum.

Trump’s resolve to pursue his confrontation with China is doubted amid administration infighting and suggestions that the United States might settle for increased Chinese purchases of American products rather than demand wholesale changes to China’s economic system in ongoing trade talks.

“It makes sense to get the other countries more involved. . . . But they don’t know how serious Trump is on the systemic reform bits,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics.

China has tried to defuse the global irritation over its mercantilist stance by signaling a willingness to revise a program of state subsidies and market share targets called “Made in China 2025.”

The new flexibility comes as Chinese industrial production figures Friday fell short of economists’ expectations and retail sales grew at their slowest rate in 15 years.

Analysts in China and the United States say China is modifying the Made in China program because of pressure from all its major trading partners.

In September, trade ministers from the United States, European Union and Japan issued a joint statement that blasted the use of subsidies in turning “state owned enterprises into national champions and setting them loose in global markets.”

The statement, which did not name any country, also rejected forced technology transfer and cyberattacks — underscoring key elements of the president’s attacks on Beijing.

U.S. Trade Representative Robert E. Lighthizer has described the subsidy program, which sets market share goals for Chinese industry, as imperiling U.S. technology leadership. China wants its semiconductor manufacturers to provide 70 percent of domestic needs, up from less than 20 percent today, threatening the $6 billion in annual U.S. exports.

But roughly a dozen other countries are even more dependent on high-tech manufacturing and exports of advanced factory gear, and are more exposed to China’s desire to replace purchases of foreign products with domestic alternatives, according to the Mercator Institute for China Studies in Berlin.

“The pushback from other trading partners is a really important piece of the dynamic here,” said Michael Hirson, a former Treasury Department attache in Beijing who is now with the Eurasia Group. “That’s because the Made in China 2025 program is more of a threat to Germany, South Korea and Japan than it is to the United States.”

External pressure drove China this year to open markets for financial services and automobiles, according to economist Andrew Polk, a partner in Trivium China, a Beijing-based consultancy.

On Friday, the Chinese government also temporarily rolled back a tariff increase on U.S. autos, implementing part of a trade-war truce Chinese President Xi Jinping and Trump agreed to during their meeting in Buenos Aires this month.

Over the past year, Chinese authorities have eliminated the foreign ownership cap for life insurers, approved foreign financial institutions underwriting domestic bond offerings and agreed to lift limits on foreign stakes in automotive joint ventures by 2022.

“This isn’t just Trump bellyaching. It’s the only bipartisan issue in Washington. It’s a concern for Brussels and Canberra and that recognition is what has helped drive accelerated market openings,” Polk said. “They’re desperate to change the narrative. They realize how the ground has shifted under them.”

From the outset, the president has pursued his plans for an “America First” remake of U.S. trade policy with little regard for sentiment abroad. He withdrew the United States from the 12-nation Trans-Pacific Partnership as one of his first official acts, and he has imposed unilateral tariffs to a degree unseen since the 1930s.

His attacks on the World Trade Organization also undermined any chance that China’s trading partners would unite in a comprehensive complaint in Geneva.

The United States did win E.U. and Japanese support for a complaint to the WTO alleging China has violated U.S. intellectual property rights. But rather than use the global trade body for a broader attack on China, the administration has demanded changes in the way the organization operates.

To critics, the administration missed an opportunity to marshal China’s trading partners behind an across-the-board indictment of its state-led economy.

Jennifer Hillman, a professor of practice at Georgetown University Law School, told the Senate Finance Committee last month that the United States “ought to be bringing a big and bold case, based on a coalition of countries working together to take on China.”

On their own, U.S. allies have responded to China’s ambitions to acquire foreign technology via acquisitions, cybertheft or coercive licensing requirements with heightened scrutiny of its investments.

The E.U. agreed last month to establish a new screening mechanism for foreign investments, motivated largely by a sharp increase in Chinese activity on the continent. But the E.U. measure leaves final decisions to national governments and falls short of the Committee on Foreign Investment in the United States.

The German government in July blocked two potential acquisitions by Chinese investors, following similar action by Canada two months earlier, and lowered to 15 percent from 25 percent the foreign ownership stakes that require review. British Prime Minister Theresa May’s government also announced plans for closer scrutiny of investments by foreign entities.

Despite his reputation as a global loner, Trump’s views on China are becoming the conventional wisdom. Last month, as the president prepared to travel to Buenos Aires for an international summit and dinner with Xi, a top administration official claimed broad support for U.S. goals.

“The rest of the world knows that China has been violating common trade practices, WTO trading practices and laws. The rest of the world knows full well about the issues of IP theft and forced transfers of technology. They know that and they’ve said so. This idea that other countries are not with us — it’s just not true,” said National Economic Council Director Larry Kudlow. “The rest of the world knows this, and China knows the rest of the world knows this.”

U.S. and Chinese officials are racing toward a self-imposed March 1 deadline to negotiate a trade deal that would involve changes to China’s state-directed economy. Many Trump allies are skeptical China will agree to turn away from its state-directed system and embrace additional market changes.

With the United States and China locked in a geopolitical competition, It is easier for revision-minded officials to advocate changes in programs like Made in China 2025 by citing shared concerns among all the country’s major trading partners, Hirson said.

Chinese authorities have changed course under pressure before. In 2015, regulators scrapped plans to require foreign financial institutions to install Chinese software amid complaints from U.S., European and Japanese diplomats and business groups, said Erin Ennis, senior vice president at the U.S.-China Business Council.

“We have seen progress like this in the past when the U.S. and other trading partners had a nearly universal view,” she said.

Some administration officials scoff at the proposed changes as cosmetic and designed to sap U.S. negotiating willpower.

Michael Wessel, a member of the U.S.-China Economic and Security Review Commission, called disclosure of plans to allow foreign companies a greater role in the Chinese technology program “an influence operation at its best.”

He questioned whether changes in relevant Chinese laws would mean much so long as the courts remained under the control of the Communist Party.

“What the Chinese are talking about are really just baby steps,” he said.

By David J. Lynch
Anna Fifield in Beijing contributed to this report.
Washington Post


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