By Robert Romano Just when it appeared that a new trade agreement with China was being finalized last week, Beijing abruptly attempted to change all the terms of the deal and walk back prior concessions that had been made to head off President Donald Trump’s threat to increase tariffs from 10 percent to 25 percent on $200 billion of goods. The changes had arrived on May 3 late in the evening and blew up months’ worth of negotiations. According to Reuters’ David Lawder, Jeff Mason and Michael Martina, “In each of the seven chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: Theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.” It was an unacceptable situation. China was reneging on the deal. Trump had already delayed the 25 percent tariffs in January to give negotiations a chance to make a breakthrough. Then, on the eve of concluding the agreement, Beijing wanted to do a complete 180 on everything that had already been discussed. Instantaneously, and in response, on May 5, President Trump said that the new tariffs were going into effect, giving May 10 as a hard deadline, which has now passed. The tariffs went up at midnight. China’s erratic behavior in the past week necessitated Trump’s tariff threat, if for no other reason than to get the negotiations back on track. It could be argued that the only reason for the negotiations in the first place was because of the imminent tariffs. Now, we can only surmise the apparent concessions by China were merely a delaying tactic, intended to test out how committed Trump was to the tariffs. And now China knows President Trump means business. Which, it’s time to get tough. Since China entered the World Trade Organization in 2001, U.S. manufacturing market share has dropped from 13.4 percent to 7.5 percent in 2017, according to World Bank data. China has risen from 5.3 percent to 16.6 percent in 2017, although their percent of global manufacturing market share has peaked in 2015 at 18.8 percent. During that time, the U.S. economy has not grown above 4 percent since 2000, and not above 3 percent since 2005 on an annual basis. The trade in goods deficit with China hit a record high in 2018 at $419.1 billion according to the U.S. Census Bureau. And that was with President Trump’s 10 percent tariffs on $200 billion of Chinese goods that came atop a 25 percent tariff on $50 billion of hi-tech goods. Fueling the shift in production has been a competitive devaluation of China’s currency, the yuan. From 2014 alone, after a period of revaluation that could be accomplished as its global market share was still increasing, Beijing shifted from being worth 6.05 per dollar to about 6.8 per dollar today, a 12.6 percent devaluation. China has a lot more to lose in a trade war than the U.S., too, according to data by the U.S. Trade Representative. China’s $539.5 billion of goods exports to the U.S. comprised almost 4.1 percent of its $13.28 trillion Gross Domestic Product in 2018 and about 22.5 percent of its $2.4 trillion of goods exports. In contrast, American goods exports to China were $120.3 billion, comprising 0.58 percent of the 2018 annual GDP of $20.5 trillion, and comparatively 7.2 percent of its $1.66 trillion of goods exports. From 2000 to 2016, the U.S. lost nearly 5 million manufacturing jobs. There was some recovery after the financial crisis, and in addition, 470,000 manufacturing jobs have been created since President Trump came into office in 2017. Labor participation among working age adults has dropped significantly through 2016, accounting for about 9 million people who would have been participating in the economy had labor participation remained the same. Since President Trump took office, that number is down to about 6.9 million or so as working age labor participation has increased, thanks in part to Trump’s new trade policies but also tax cuts and deregulation to make the U.S. more competitive globally. None of the bad things that were supposed to happen because of the tariffs have come to pass. The economy grew at 2.9 percent in 2018. It has accelerated to 3.2 percent in the first quarter. Unemployment is at a 49-year low at 3.6 in April. Inflation is normal at about 2.0 percent the past 12 months. The negotiations are still ongoing, and a deal may still be had, but even if that does not happen, the world is not ending. The sun still rose today. The point is, there is most certainly a case to be made for the President’s tariff stance. If anything, the question about the new tariff is not whether it is justified, but whether it is big enough? Correction: The Bureau of Labor Statistics updated the consumer price index this morning, bringing inflation for the past 12 months at 2 percent. Also, if labor participation had remained what it was in 2000, there would be 6.9 million more people in the labor force today. Robert Romano is the Vice President of Public Policy at Americans for Limited Government.<doc-sep>After Mr. Trump and President Xi Jinping of China talked over a steak dinner in December at a Group of 20 meeting in Argentina, the administration decided to shelve the proposed sanctions, according to the American officials. The two leaders had set a deadline of March 1 to reach a broad trade agreement, and American officials decided the sanctions could wait until after that deadline. But trade negotiators failed to reach a deal by that date, and talks are still continuing. China has cracked down on ethnic minorities like the Uighurs, a Turkic-speaking group of mostly Sunni Muslims, who form the largest ethnic group in Xinjiang. For decades, many Uighurs have resented Communist Party rule, saying Chinese officials suppress their culture and religion and practice widespread discrimination. Officials in Beijing say they fear terrorist ideas have taken root among the Uighurs and point to outbursts of violence in recent years, particularly a deadly riot in the capital of Xinjiang in 2009. A vast internment program began soon after, largely under the orders of Chen Quanguo, who became party chief of Xinjiang in August 2016, after a stint in the Tibet Autonomous Region. Of the majority-Muslim nations, only Turkey has strongly denounced the recent mass detentions and surveillance in Xinjiang, though Ankara maintains strong economic ties to Beijing. “Beijing hasn’t significantly changed its policies in Xinjiang,” said Sophie Richardson, China director for Human Rights Watch. “So it’s still appropriate the United States go ahead with the sanctions.” As a last-ditch effort, activists are now pushing American officials to insert the humanitarian crisis in Xinjiang into the trade talks, which may wrap up next week in Washington, or to impose sanctions to pressure China to end persecution in the region. On Friday, a group of about a dozen demonstrators, many of whom are Uighurs living in the United States, gathered in Washington outside of a conference focused on sanctions policy to pressure Treasury Department officials to take action against Chinese officials involved in the Xinjiang abuses under the Global Magnitsky Act.<doc-sep>
The difficulty of this task appears to be what drew Lighthizer into the administration in the first place. He was headed for a comfortable semiretirement, Dan DiMicco, a former steel CEO who put Lighthizer’s name forward during the transition, told me last year. Lighthizer has long seen China’s economic overtures to be a kind of Trojan horse. “Its leaders view economics the same way they view defense, foreign policy or human rights. It is a means of expanding the power of the state and maintaining control of its population,” Lighthizer wrote in a 1999 essay inveighing against President Bill Clinton’s plan to bring China into the WTO, through which it could trade with the West on more favorable terms. “We have all the leverage in the world if only we are willing to use it,” he wrote a few years later. Using that leverage against China became Lighthizer’s personal and professional mission. Now that the China talks have hit a low point, the question to ask is whether a man who spent decades preparing for this moment is unprepared for it. A crucial moment for the talks came in April, when Mnuchin said that the U.S. and China had “pretty much agreed” to create a mechanism to enforce the deal. That announcement aimed to resolve a lingering problem. The U.S. wants the deal to effect real changes. But why would China ever agree to let the United States punish it unilaterally? The answer, as Mnuchin explained: Both sides would agree to let the other police the deal. The trouble with that plan is that it cuts against everything Lighthizer and his hawkish allies believe about America’s role in the global economy. In their telling, China has been plundering the American economy since at least its entry into the WTO, in 2001. Letting China monitor the U.S. would be something of an insult to the American workers the negotiators say they’re defending. “Nothing known about the Trump administration’s enforcement strategy should give anyone confidence that satisfactory enforcement is possible,” wrote the economist Alan Tonelson in April. “Decades of experience should by now have clearly taught the lesson that, at least under the present Chinese regime, mutually beneficial economic ties were never possible.” Read: China and America may be forging a new economic order Lighthizer may well have persuaded Trump to act out a bluff as a way of forcing concessions. But even if he isn’t, and the talks really are in trouble, the U.S. has already taken steps to limit its perceived vulnerabilities to China. It has sent a loud message that companies with Chinese supply chains need to consider their business strategies. The iPhone supplier Foxconn is building plants outside China, the Financial Times reports. The administration’s still-unratified NAFTA replacement deal includes a provision limiting Mexico and Canada’s ability to do deals with China. And speaking of Mexico, business is booming because of the trade war. After the U.S. put tariffs on silk yarn from China, Mexico’s exports to the U.S. jumped up from “almost nothing” as China’s fell, Bloomberg reports. Congress has newly empowered a national-security committee, known as CFIUS, that vets incoming investment into the U.S. As a result, “as many as a dozen China-linked firms have scaled back their US investment programs, some dramatically,” report Recode and Vox. The United States has also enforced a legal blockade on the WTO, refusing to allow the appointment of new appellate judges who might find against American interests.