U.S.-China Trade Negotiations: 10 U.S. Goals
March 29, 2018
Adapted from the work of Scott Kennedy, CSIS: cs.is/2DZxOoW
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“A cessation of hostilities between the U.S. and China is not the goal; rather, constraining Chinese industrial policy is. There is, in fact, a danger that the trade war could end prematurely. The right outcome is more important than a fast outcome.”
The Lighthizer 301 Report highlights areas of concern regarding China’s misbehavior dealing with intellectual property. The report and at least three others collectively demonstrate a pattern of behavior that places China far outside its bilateral and multilateral commitments, damaging the interests of its trading partners and global supply chains, and eroding confidence in the international system.
In this trade conflict, a key potential source of U.S. strength is its allies and other economies that have also suffered at the hands of Chinese malfeasance. However, instead of working diligently to court these economies to stand shoulder to shoulder against Beijing, Washington has alienated them time and again, first by withdrawing from Trans-Pacific Partnership (TPP), by putting aside the Transatlantic Trade and Investment Partnership (TTIP) negotiations, and by forcing South Korea to renegotiate its bilateral trade agreement with the United States.
Another key source of stamina is domestic unity, ensuring that business and labor remain united and willing to sacrifice short-term pain for long-term gain. But the administration has done little to assuage the concerns of business and reassure them that it is acting in their best interests.
The missteps with other trading partners, the home front, and initial penalties could be ameliorated if the United States were to have a principled bottom line in negotiations centered around constraining Chinese industrial policy.
A list of “Top 10” limits on Chinese industrial policy that the U.S. should seek in its negotiations:
1. Require China to limit subsidies to pre-competitive research and development (R&D) and make them available to domestic and foreign firms alike
2. Eliminate ownership caps and joint venture requirements for foreign investors
3. Eliminate technology transfer requirements
4. Lower tariffs on manufactured products such as automobiles and machinery
5. Fully open up value-added services (finance, health care, education, and logistics) to private and foreign firms alike
6. Move toward market-based standards and certification systems
7. Better gear its cybersecurity regime to promote global commerce and protect privacy
8. Liberalize government procurement
9. End window guidance for bank interest rates and adopt a neutral registration system for initial public offerings
10. Make the national and local regulatory process more transparent.
Taking these steps wouldn’t fully eliminate China’s industrial policy machine, but it would push China to have a much more market-friendly and efficient economic governance system that would benefit both itself and its trading partners.
It’s imperative that the Trump administration orient its goals to this higher purpose in order to obtain the international and domestic support needed to achieve a meaningful victory.
Adapted from the work of Scott Kennedy, CSIS: cs.is/2DZxOoW
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