The Endless Roller Coaster of US-China Trade Relations, and Huawei
The United States and China have now been in what appears to be endless trade dispute with no clear path to move forward. While this has been longer than anyone had initially anticipated, it is not surprising given that the dispute involves important, structural matters.
China argues that the United States is adopting a discriminatory posture towards China, and points to banning of Huawei equipment and service as evidence of this.
The United States argues that China is protecting its market including manipulating its currency and not letting American products and services into China. The US also argues that China is letting violations of Intellectual Property Rights occur without any consequences to that actor(s.)
It is time for compromise and resolution
Whatever be the arguments, it is time for compromise and resolution. Why? For three evident reasons.
One, most independent analysts and scholars see the trade dispute as impacting the US and China economy adversely. Nobelist Paul Krugman has this to say recently: "It looks like uncertainty about trade policy is having a pretty serious drag on the capital expenditure. Trade war seems to be intensifying between US- China and there are no visible signs of any real negotiation.” US Federal Reserve Bank Jerome Powell makes the same observation: “I think it is the case that uncertainty around trade policy is causing some companies to hold back now on investment….So for businesses, to particularly make longer-term investments in plants or equipment or software, they want some certainty that the demand will be there.” The US stock market is a every-day reminder of the uncertainty. Whenever there is any hopeful sign of resolution of the dispute, the market rises and any suggestion of lack of such resolution drags the market.
Two, President Trump is up for reelection in a year’s time. His best election asset is robust economy, and he cannot afford (and will not want) to let that slip.
Compromise is difficult, Resolution challenging
The compromise by US and China is difficult because the dispute matters are fundamental and structural.
The US insists that China open its market to American products and goods, particularly the Agricultural goods. China has opened its market some, and promises to do more. But China cannot proceed at a faster rate. China’s own economy is soft and it cannot serious trade dislocations and adjustments now. Further, China’s economic institutions are not yet as strong as they need to be for a serious trade dislocation.
The US also insists that China protect the Intellectual Property Rights more vigorously. But some of this has become challenging because of affordability and social equity issues, particularly in the pharmaceutical drug industry. It is not only China, India too faces this challenge. For instance, India’s highest appellate court ruled against Novartis in a patent protection case primarily based on social justice and affordability arguments.
What can be done?
Obviously, China will have to provide clear and specific timetable and portfolio of actions that it will take to address the concerns of the US and the Europe. The proposed actions may be only incremental, but they must be concrete and specific. The timetable must be more immediate and distant.
For China to do this, the US and Europe must give some political space for President Xi. Constant threats of additional tariffs and/or other threats crowd that space and make it impossible for President Xi to compromise.
So, here are three incremental and plausible suggestions as the China’s delegation travels to US in the month of October for continued conversation.
1. President Trump not threaten additional punitive actions against China – go dark for the next 3-4 months.
2. The US provide an opportunity to President Xi to claim victory. For China and President Xi, the matter of Hua Wei is important. The US can attenuate its tough posture against Hua Wei. The US can permit Hua Wei in non-core sectors, as proposed by Europeans. Hua Wei’s participation in the US market will be beneficial to rural America, and to spur competitive innovation in 5G and other related areas.
3. China can immediately increase its import of agricultural products from the US. Agricultural economy is important for President Trump’s election because it impact the States (such as Iowa, Nebraska, North Carolina) that Trump has to absolutely win to secure re-election.
There are no certainties in life, but through thoughtful choices we can increase the odds for a win-win situation.