While global markets were still digesting the Trump Administration’s gambit on broad-based steel and aluminum tariffs, the president signaled his next trade actions would be directed against China, in a tweet worthy of Dr. Evil himself.
“China has been asked to develop a plan for the year of a One Billion Dollar reduction in their massive Trade Deficit with the United States,” The president writes, upturned pinky placed gently at the corner of his pallid lips. “Our relationship with China has been a very good one, and we look forward to seeing what ideas they come back with. We must act soon!”
Observers quickly pointed out that $1 billion is a hilariously low ask—less than 0.3% of the the U.S.-China trade gap. Turns out the president mistyped, and that the administration actually demanded that China reduce its trade deficit by $100 billion during a meeting last week with Liu He, China’s top economic policymaker.
It may be safe to assume, given the president’s own glaring lack of familiarity with the details of the U.S.-China trade deficit—coupled with the mass ongoing exodus of competence from the White House—that this administration will muck up trade negotiations with China. But remember that the Chinese economy is hugely dependent on the American market, with nearly 20% of Chinese exports landing here last year. On the other hand, China accounts for just 8% of U.S. exports, while the American economy is far less dependent on exports for jobs and economic growth than China is.
Donald Trump’s favorite thing in the world is leverage, and the U.S. has plenty of it when it comes to trade negotiations with China. So far the administration has been relatively cautious during it’s trade negotiations, taking no serious actions besides enacting a tariff on solar panels aimed at Chinese producers and shutting down a “comprehensive economic dialogue” between the two countries until Beijing is ready to take concrete, unilateral steps to reduce its trade surplus with the U.S.
But that looks like it’s about to end, after talks between Liu and the trio of U.S. Trade Representative Robert Lighthizer, and Trump economic advisors Peter Navarro and the recently departed Gary Cohn yielded no results. The Chinese are complaining that the U.S. won’t give it a list of concrete demands outside of reducing the trade deficit, which is subject to forces outside the control of both countries. (Though they point out correctly that a recent surge in deficit spending in the U.S. will only serve to boost American imports of Chinese goods.)
The Chinese are right to complain that the Trump Administration is a chaotic mess, and that the president’s focus on single numbers like the bilateral trade deficit gives away his lack of understanding of macroeconomics. But the President is right about the big picture, in that China has unfair trading advantages with the U.S., and that these advantages have quickened the pace of American deindustrialization and technology transfer between the U.S. and China.
It’s even smart to refrain from giving Beijing a set of specific demands, since Chinese advantages are the result of a complex web of subsidies, regulations, and other non-tariff barriers to maintain its trade surplus with America and much of the rest of the world. A specific list of demands, therefore, could allow China to reduce unfair subsidies in one area but increase them in others.
Such a hardline stance could help dislodge domestic political barriers to reform. Top Chinese officials have long claimed they wanted a more balanced economy, less dependent on exports and capital accumulation at home. But when push comes to shove, China has always relied on those same engines to maintain the torrid pace of economic growth it needs to keep its massive population employed. But broad tariffs directed at China would throw sand in those same engines, potentially giving Communist Party leaders the encouragement they need to make difficult reforms.
The chaos of the Trump administration has been a hindrance to its own success time and again, and success in trade negotiations with China is far from assured. But the pointmen on this project, Robert ighthizer and Peter Navarro, are professionals who have studied these issues for decades and have advantages at their side, namely the fact that both China and the U.S. agree that there is a problem here. For some reason, they’ve decided to embark on these negotiations unilaterally, instead of mustering support from partners like the EU, which also suffer from a deluge of Chinese imports. But if you’re betting on one area where the Trump Administration might secure another first-term victory, keep your eye on China.
Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.