President Trump’s intention to persuade China to play by long-established international trade rules is commendable. But focusing on the U.S. trade deficit with China, and imposing tariffs to eliminate it, has proven ineffective. Now, the coronavirus has given Trump an opportunity to shelve that failed strategy and immediately eliminate tariffs on Chinese imports. This shot in the arm will likely be reciprocated by China, stimulate our economies, and give Trump the opportunity to chart a better course. Let me explain.

In 2018, President Trump began increasing tariffs on Chinese imports thereby making them more expensive in the United States. In turn, it was hoped that Americans would buy fewer Chinese goods, eliminate the U.S.-China trade deficit, and put pressure on China to change bad behavior.

What happened? Chinese President Xi Jinping retaliated by increasing tariffs on U.S. products sold in China, which led to a trade war. The result: the U.S. trade deficit with China decreased by less than 18% from 2018 to 2019, and dipped by only 2.5% with the rest of the world. Hardly a win.

This reality, which reflects fewer imports from China but more from other low-cost countries, barely altered the overall trade deficit. And it came at a high cost to U.S. manufacturers and farmers who have experienced significant hardship due to being locked out of Chinese markets.

To improve the situation right now, President Trump should immediately slash all tariffs placed on China since 2018. Chinese President Xi Jinping would likely respond in kind.

In addition, in January, the United States and China signed what’s called Phase One of a trade deal. However, many analysts believe this is little more than a temporary truce and a short-term political win for Trump.

Why? China agreed to buy an additional $200 billion in U.S. goods and services over the 2020-2021 period. But many China experts say this steep goal was unlikely to be met even before the coronavirus diminished China’s purchasing abilities. Regardless, no official measure of success will be available before the Presidential election in November 2020.

Analysts consider China’s other concessions minimal. For example, in Phase One China also agreed not to devalue its currency even though it has consistently strengthened it since 2005. And it simply reaffirmed past commitments to improve intellectual property protection and reduce barriers to investment in the Chinese financial services sector.

If the United States and other countries don’t manage the coronavirus well, our economies may be hit extremely hard and go into recession. If the pandemic is quickly and effectively halted, pent-up demand could result in growth spikes later in the year. Nevertheless, to improve the situation right now, President Trump should immediately slash all the tariffs he has placed on China since 2018. Chinese President Xi Jinping would likely respond in kind.

In The Spotlight

But unless more effective leverage is applied, China is unlikely to take the steps necessary to play by international rules. Why? Doing so would make it more difficult to dominate various industries of the future and shift its economy into a higher gear that offers the Chinese population better growth prospects, more attractive job opportunities, and a higher standard of living.

What’s a better strategy to convince China to change behavior? The United states and our European and Asian allies need to begin working together to put pressure on China. Our allies have similar problems with China and a similar interest in remedying them.

Importantly, the United States should regain leverage by joining the Trans-Pacific Partnership that Trump rejected in 2017. During efforts that included the United states and 11 other Pacific-bordering nations to create the pact, the members represented approximately 40% of global economic output, one-third of trade, and acted as a counterweight to the rise of China.

But this also is a Sputnik moment — a point at which people realize they are threatened by a serious challenge and have to do what’s necessary to catch up. It reflects the time when the former Soviet Union launched the first satellite, Sputnik 1, into space ahead of the United States.

To meet the Chinese challenge, the U.S. government should significantly increase funding of technology research and development, commit to improving education at the elementary level, and improve U.S. infrastructure to boost productivity.

According to the FBI, Chinese theft of American technology is the biggest threat to national security. President Trump has stepped up efforts to better asses and prevent Chinese investment in U.S. companies producing sensitive technologies. And efforts are underway to prevent cyber espionage. But more needs to be done.

Focusing on trade deficits and tariffs has hurt American companies, reduced economic growth, and not addressed the real challenges China poses. Moving forward, the United States should work closely with our allies and make necessary long-term investments in the United States. If Trump doesn’t change course, perhaps our next president will.

This article was internationally syndicated by Tribune News Service/Tribune Content Agency and appeared in newspapers across the United States and globe.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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