The Verdict On Trump Trade Policy, Part 2: Challenging China

A central thrust of Trump administration trade policy has been its attempt to rework trade relations with the People’s Republic of China. Yet with relatively little notice recently, President Trump effectively declared that the effort has failed. 

 There are at least two big challenges in assessing the success or failure of such an ambitious trade and foreign policy undertaking. First, what was the goal of the policy? Second, whatever the short-term costs of the approach, could there be benefits still to come that would make those costs worthwhile?

There are three candidates for goal of the China trade policy:

1.                 Recognizing the challenges posed by economic relations with China and pressing to address those challenges.

2.                 Decoupling from China economically. 

3.                 Effecting fundamental change in Chinese behavior. 

All have been voiced, but only the third stands up to scrutiny. While President Trump and his team have claimed credit for recognizing issues in the China relationship, this was demonstrably the behavior of every administration since Richard Nixon. China applied for membership in the GATT (the WTO’s predecessor) in 1985, when it was a small but populous player in the global economy. Rather than being granted quick entry, those negotiations lasted until 2001, through the presidencies of Ronald Reagan, George H.W. Bush, Bill Clinton, and into that of George W. Bush. 

The lengthy process was not just the result of a bookkeeping backlog. It was clear at the time that China’s economic system was different. The negotiations were prolonged and difficult and resulted in a substantial set of Chinese obligations in China’s protocol of accession to the WTO. 

One can certainly argue whether the outcome was the best the United States could have achieved, but one cannot argue that China was ignored. Further, after China’s WTO accession, both the George W. Bush administration and Barack Obama’s administration held regular economic dialogues to address U.S. concerns. Thus, President Trump deserves no more credit for recognizing issues in the China relationship than he does for having successfully moved in to 1600 Pennsylvania Avenue; all his predecessors did it. 

A somewhat trickier question is whether the Trump administration’s goal was decoupling with China. This has certainly been the goal of key members of the Trump administration, such as Peter Navarro, a top trade adviser and author of “Death by China.” There are reasons to set this aside as the measuring stick of Trump trade policy success with China. First, President Trump did not act as though this was his goal. While substantial tariffs were applied on U.S. imports from China, they were applied gradually and in a negotiating context. Then, they were partially rolled back when the Trump administration struck a “Phase One” tariff deal this January– a deal that promised more and growing economic engagement with China, not decoupling. Had decoupling been the goal, it could have been achieved with quick, prohibitive and unwavering tariffs. 

It is further unlikely that an abrupt and lasting decoupling policy could have won sufficient political support to last, even within the President’s own party. As but one example of the economic cost that would have imposed, there is the damage done to American farmers of soybeans and other commodities by the Section 301 tariff war. President Trump won substantial support in the agricultural community and elsewhere by vowing that decoupling was not his goal. 

Consider, as but one example, the 2019 statements of Sen. Joni Ernst (R-IA). In an interview, she talked about the difficulties facing Iowa agriculture, but why she still supported the President’s actions: “The president, he is doing the right thing…China went back on everything they had agreed to. So, the president is using the tariffs as leverage, but I’m telling you, our farmers are feeling the pinch.” Thus, the tariffs and the accompanying diminution of trade were a means to an end, not an end in themselves. 

That leaves a single clear category for judging the policy: did it bring about real change in fundamental Chinese economic practices? The bar is set fairly high for a couple reasons. First, the costs of the Trump approach were high. Hundreds of billions of dollars of trade were affected by new tariffs, harming American businesses, workers, farmers, and consumers. For farmers alone, the trade damage prompted bailouts of more than $23 billion. Such a high cost demands a proportionately high return. 

Further, the Trump administration itself set the bar high.  Top administration trade officials were scathing about the willingness of their predecessors to accept Chinese promises of future reform and farm purchases, rather than pressing for more fundamental reforms. 

As of early July this year, one might have argued that the Trump administration had earned an “incomplete” grade for its aggressive, unilateral China trade policy. It had struck a trade deal in January that largely consisted of Chinese promises of future reform and farm purchases – exactly the sort of thing the administration had publicly scorned. There was no sign of deep reform – neither promised by the Chinese nor completed. Further, even the purchase targets for U.S. exports seemed increasingly unlikely to be met. 

But the Trump administration had left itself an out. It described the January deal as a “Phase One” agreement. And trade officials declared that there would be a future “Phase Two” deal in which deep-seated Chinese reforms would be achieved. However far-fetched that may have sounded – cooperation between the US and China has appeared increasingly difficult – it was hard to prove that it wouldn’t happen. 

Until early July. Then, President Trump declared that he was not interested in conducting further “Phase Two” talks with China. That meant the meager accomplishments we see are the accomplishments we get. The tariffs are not leverage at all; they are the new normal. 

The “incomplete” gives way to an unflattering grade. The Trump administration appears to have made less progress than previous administrations in changing Chinese behavior, and at substantially greater cost. By its own preferred measures, its China trade policy has not been a success. 

See Part 1 on Trump trade policy toward NAFTA.