A US demand for China to give up its economic model would doom trade talks

Mié, 02/20/2019 - 16:51 -- lvargas

After the last round of trade negotiations in Beijing, China and the United States have signalled

progress towards an agreement. US President Donald Trump, after hearing reports from US trade negotiators, tweeted on Sunday that “Big progress [is] being made on soooo many different fronts! Our Country has such fantastic potential for future growth and greatness on an even higher level”.

Chinese President Xi Jinping, in his meeting with US delegation last Friday, also congratulated negotiators from both countries for their success in achieving broad progress towards a final agreement.

Comments by both leaders generate hope for a successful deal. This would serve not only the interests of the two countries but also the world community.

As the world’s largest economies, China and the US have obligations not to throw the global economy into uncertainty. While both have legitimate national interests to protect, they cannot shirk their global responsibilities. Because of their combined economic weight, a trade war will wreck global economic prosperity.

According to the World Bank study “Global Economic Prospects, Darkening Skies”, released on January 9, the risk of rising trade protectionism remains high. New US tariffs and the retaliatory response of trading partners now affect close to [US]$430 billion of global imports”.

As a result, the bank says the US-China trade war could make a global recession likely by 2020, and the uncertainty it generates “is likely to weigh on firms’ willingness to invest, export and engage in international value chains, with negative effects on the global trade outlook”.

In addition to global recession, China and the US would pay a price for the trade war. The bank predicts US growth would drop from 2.9 per cent in 2018 to 2.5 per cent in 2019, and China’s growth from 6.5 per cent to 6.2 per cent.

As Xi said in his meeting with the US delegation, “We all think that in terms of maintaining the prosperity and stability of the world, as well as promoting global economic prosperity and development, our two countries share broad mutual interests”.

The path to cooperation is no doubt fraught. Due to its relative decline and the re-emergence of a multipolar world, Washington has been anxious. As a result, the Trump administration has shifted towards a more competitive strategy. Hence, the administration has defined China as a “

strategic competitor”.

Countries typically exaggerate others’ malign intentions. For example, many in the US exaggerate China’s intent to replace it as the world’s dominant power. Mutual exaggeration of malign intentions can lead states into cold wars, which harm the interests of both parties.

A successful deal between China and the US would promote strategic mutual trust and prevent a new cold war. It would convince China that US motives are confined to “unfair” trade relations only.

Such as a conviction would motivate China to make the necessary concessions for a trade agreement. Conversely, if it perceives the US as intent on a cold war, this would motivate China to stand firm.

A successful deal would therefore prove that while the two great powers will certainly compete, they can nonetheless work with each other to safeguard global stability and avoid a new cold war.

This new bilateral relationship could constitute a commendable model for great power relations in the 21st century. They would also prove that they could act responsibly, in the world’s common interests.

Given the stakes, if the two sides have indeed made genuine progress but cannot narrow final differences before the March 1 deadline, Washington should consider postponing the deadline. Recently, Trump indicated that he may consider this possibility if significant progress has made a final agreement likely.

Moreover, the US should pursue a longer-term, flexible negotiating strategy to enable a deal in the coming weeks or months.

It is reported that China has been willing to take significant measures to address trade deficits, forced

transfer of technologies, protection of intellectual property rights and market access by US companies.

However, the US demands that China stop subsidising

state-owned enterprises, as these violate free trade principles and distort trade relations.

This insistence, while legitimate in many regards, could derail a deal. Washington is asking for nothing less than an overhaul of the Chinese economic model.

Indeed, the so-called China model is built on the coexistence of state and private sectors. This would be hard for Beijing to swallow; as Xi warned last Friday, while China wants to cooperate with the US, China would only consider “an agreement acceptable to both sides”.

To prevent the issue from derailing an agreement, the US should consider a more patient strategy aiming for longer-term changes to the Chinese economic model.

It must recognise that it is impractical to change the economic system of another country – a peer great power – with a few rounds of trade negotiations. Instead, Washington should be aware that China has been debating the need for further market reforms.

The US strategy should be to encourage China, while applying appropriate pressures, towards that goal.

The right way is to seek maximum Chinese commitments to the reforms of its state-owned sectors while avoiding a last-minute failure of trade negotiations. Further reforms of China’s state sectors should be on the agenda of future rounds of trade negotiations.

As long as China makes enough progress towards significant reductions in trade deficits, better protection of US technologies and greater market access by American companies, Washington should be willing to seal a deal with Beijing. This flexible, longer-term strategy is both realistic and responsible.

Tema de investigación: 
Integración y comercio