The Trump trade war with China is doing more harm to the U.S. than good, but it’s unlikely the two countries will reach an agreement within the year.
That was the message of former U.S. ambassador to China Max Baucus and former U.S. trade representative Michael Punke as they discussed U.S.-China trade issues with ABC News correspondent Gloria Riviera on Thursday afternoon at the University of Montana School of Education.
Riviera herself spent three years based in Beijing covering China.
Both Baucus and Punke – now the vice president of public policy for Amazon Web Services – said the problem with Trump upping Chinese tariffs is that such moves are not effective when only the U.S. is implementing them. In an increasingly global economy, such actions must be multilateral, not unilateral, Punke said.
Punke pointed at former President Jimmy Carter’s 1980 attempt to put an embargo on grain sales to the Soviet Union after the Soviet Union invaded Afghanistan. The problem was that U.S. farmers suffered from the market loss as other countries moved in to sell grain to the U.S.S.R. so the embargo produced little change.
“Today, I worry we’re exercising another form of unilateralism, but we’re trying to do it in a global economy,” Punke said. “Even if we’re not selling our wheat, soybeans, beef and pork to China, I guarantee you that the Canadians and the Australians and the Europeans are gleefully selling their wheat, soybeans, beef and pork to China. The problem is, without allies in a contest like this, it’s very hard in a global economy to succeed.”
Just as China can turn to other countries for imports, it can also use other countries to create its goods now that it has a stronger economy. Punke gave the example of the textile industry, which moved from the U.S. to China when it was cheaper to pay Chinese workers. Now, when Vietnamese workers are cheaper, companies have moved parts of the process there or other countries where tariffs aren’t in effect. Companies that are moving out of China aren’t moving back to the U.S., Punke said.
“Sometimes, we assume once a switch gets flipped, our exports will flow back in. And that’s not the case and agriculture is an incredible example of that,” Punke said. “Building markets and building relationships, all that is built up over decades. If suddenly you’re perceived as being an unreliable supplier because there’s a fear your government is going to yank you out of the market, your customers are going to go someplace else.”
Baucus credited Trump with being strong in dealing with a growing country that has come into its own in a brief period of time. The Chinese economy is 450 times greater than it was just seven decades ago. So China “is feeling its oats,” Baucus said, so the U.S. needs to be more strategic in dealing with China.
The Trump administration in working on that, but it keeps undermining itself by being so inconsistent on where it stands day-to-day.
“President Trump is trying to put together a strategic plan, but he hasn’t gotten very far,” Baucus said. “So we don’t have a plan. But President Trump has addressed the problem more firmly than we have in the past. I hope – my expectations aren’t very high – that this pressure will result in significant changes in China’s behavior. But I’m not sure it’s going to.”
One of the biggest drawbacks is Americans don’t understand the Chinese, Baucus said. It wasn’t so long ago that the Chinese had to suffer through a revolution and millions died. They learned to live without. Plus, they didn’t chose democracy once their economy started rolling, as U.S. policymakers predicted. They developed state-led capitalism and are content in a society with a large state presence.
“The Chinese will tough it out. We think we can inflict pain on them unilaterally,” Baucus said. “We’re going to lose these markets.”
On Thursday morning, U.S. and Chinese negotiators began meeting in Washington, D.C., to try to ease the trade war before another round of Trump’s tariffs go into effect next week.
Neither Baucus nor Punke expected the talks to yield fruit, at least not now.
Baucus predicted that China would be unlikely to enter any agreement until closer to the 2020 election.
“They see President Trump going through the impeachment worries and the election coming up,” Baucus said. “They also see a president who is sometimes a victim of changing his mind and he pulls the rug out from under his negotiators. They know he’s very fickle that way. So it’s hard for them to reach an agreement now unless they can find a way to get some assurance.”
Punke said China would probably go even further and wait until after the election. That’s okay because the U.S. would probably benefit from a longer round of negotiations, Punke said, because the agreement should ensure that China isn’t allowed to continue some unfair practices, such subsidizing its farmers or not accepting U.S. high-tech products.
“If all the deal is is kind of a sugar-high, ‘buy our natural gas,’ then that’s not meaningful,” Punke said. “The trick here is not to sell them things they already want to buy, it’s to sell them things they aren’t buying right now.”