Even the story of China in the WTO warrants balanced treatment. China’s commitments in 2001 lowered its barriers considerably below those of other major developing countries, such as India and Brazil. The United States was also able to add Taiwan to the WTO when Beijing joined.
China fairly implemented numerical commitments such as tariffs and quotas. But its record for duties that are harder to measure—such as forced technology transfer, intellectual property right (IPR) enforcement, regulatory reforms, and trade-distorting subsidies—is spotty.
The main problem is that current WTO rules do not cover many U.S. needs. China’s ambassador to the United States has acknowledged that his country’s suit of WTO clothes from 2001 no longer fits, and China is discussing WTO reforms with others—although haltingly—to meet various objections.
Some Chinese reformers looked to the Trans-Pacific Partnership’s (TPP) provisions for guidance—but then the United States abandoned the Trans-Pacific Partnership, and China’s internal reform advocates lost ground. Still, China has lowered its average tariff for others to 6.7 percent, although many U.S. exports face retaliatory tariffs. The new Chinese IPR courts have ruled in favor of the vast majority of international complaints, although penalties are insufficient.
China, the largest emitter of greenhouse gases, now accepts that it must join in efforts to limit climate change. However, China’s plans for coal-fueled generating plants belie its interests. Melting in the Himalayas would devastate the country. On the plus side, China is a leading innovator in non-fossil fuel technology.
Conservationists applaud China’s ban on elephant ivory sales, and China’s netizens campaigned effectively against shark-fin soup. Yet China’s tiger farms and illegal trafficking of tiger parts may lead to the extinction of those iconic cats in the wild.
In the late 1950s, China shelled Taiwan’s islands. When President Richard M. Nixon and Secretary of State Henry Kissinger opened ties almost fifty years ago, the United States suggested that “maybe history can take care of events.” The success of Taiwan’s democracy shines as an example of a transition from authoritarianism to freedom. The United States contributed through military deterrence and an assurance not to support independence. To best safeguard Taiwan, the United States would be wise not to take Beijing’s restraint for granted, especially after the apparent breakdown of Hong Kong’s “one country, two systems” model.
My point is definitely not that all is well with China. I will turn to serious U.S. complaints in a moment. But those who blithely assume that U.S. cooperation with China didn’t produce results in America’s interest are flat wrong. Those who assume that China has not acted constructively within the U.S.-guided system—who assume that China is only a disrupter—are misleading themselves, and self-deception is dangerous in diplomacy. Results should be the aim of our diplomacy.
Furthermore, the record warns us not to take benefits for granted. We are now witnessing just the vanguard of woes for America and China—and the world—if the two major powers slide into mutual animosity and zero-sum calculations.
WE NEED to be both clear-eyed about the real strategic challenges that China presents and disciplined enough not to distract with blasts that will likely lead to misjudgments and mistakes. Evan Feigenbaum has pointed out that China is, in fact, pursuing a two-track approach toward the changing international order.
As a member of international organizations, China seeks to nudge those regimes toward Chinese preferences and norms. Does this really surprise us? What is surprising is that the United States has made China’s work easier by subverting the international economic and security system that America built over seventy years. This abandonment of U.S. statecraft is not in America’s interest.
For example, the Trump administration paralyzed the WTO’s dispute resolution system at the end of 2019. Two of the remaining three members of the WTO appeals body reached the end of their terms, and the United States blocked the appointments of any successors. The Reagan, H.W. Bush, and Clinton administrations fought for and negotiated to create the WTO to give U.S. companies a fair, legal process to counter trade law violations; the Trump administration prefers to break rules and institutions. The eu, China, Canada, and many others have jerry-rigged a WTO appellate system that leaves the United States outside.
As Feigenbaum has explained, however, China is pursuing a second, alternative track as well. China’s Belt and Road presents another international model—a modern adaptation of China’s long-standing preference for tributary ties. This effort offers economic benefits to those who join China, combined with warnings for states that fail to accommodate Beijing. China is using the infrastructure of transportation, communications, and finance to redraw the economic geography of Eurasia.
The United States needs to compete with China within international institutions and country-by-country. It is hard to beat something with nothing. America should promote better ideas and practices and offer attractive partnerships, instead of retreating and bullying.
Too often, Trump and his acolytes just seem to behave belligerently because they like brawling. Not just with China—but the White House bludgeons NATO allies, Japan and South Korea, Canada and Mexico, and democratic partners around the world. The administration is wasting diplomatic capital built up over generations. As China builds a new network across Eurasia, the United States heedlessly frays its bonds with the rimlands and island strongholds across the Atlantic and Pacific.
WHY HAVE Sino-American relations tumbled into constant confrontation? I believe six developments have converged.
First, frustrations boiled over for U.S. businesses on market access: a lack of recIPRocal trade and investment openings; forced technology transfers; IPR violations; regulatory hurdles and arbitrary actions; and restrictions on exports, such as rare earth minerals.
The United States could address many of these items through calibrated, continuous pressure and negotiations. Many countries—developed and developing—share U.S. concerns. They would be willing to work with Washington, but not as part of a campaign to disengage and decouple from China. Many are wary because they are too busy defending themselves from the Trump administration’s assaults on everyone’s trade. Pick your shots.
There are also parties within China that want to fix many of these problems in order to boost reforms, support domestic innovation, improve competitive opportunities, and retain access to U.S. and other international markets. For example, China’s opening of the asset management business recognizes the need for deeper and more liquid financial and savings markets. An aging China needs better pension systems.
Of course, China’s fixes need to extend beyond words on paper. To take another example, ending requirements for joint ventures would reduce Chinese temptations and opportunities for forced technology transfers. The United States is most likely to get results if it works with other countries and combines arguments about China’s self-interest with targeted, not haphazard, threats of penalties or retaliations.
Second, Americans question whether China’s state capitalism permits fair competition. President Xi Jinping has recommitted China to privileges for state-owned enterprises (SOEs), granting them a dominant role, even though SOEs impede China’s economic potential. Nick Lardy of the Peterson Institute for International Economics pointed out in his recent book, The State Strikes Back, that about 40 percent of China’s SOEs are money-losers. Yet SOE assets are growing four times faster than those of private firms, even though SOE returns are much worse. China’s private sector is complaining about its disadvantages, inability to compete, and even intrusions on corporate governance.
There are at least two ways the United States could discipline China’s state capitalism productively. The TPP and the U.S.-Singapore free-trade agreement imposed competition policy requirements that compelled state enterprises to compete like private, profit-making firms. In addition, as Chad Bown has written, the United States could work with others in the WTO to tighten subsidy rules, subjecting them to trade penalties. But we should be aware that other countries will point to large, direct U.S. subsidies—for example, to farmers—and to indirect support through U.S. government R&D and contracts.
Third, Americans fear that China will dominate the technologies of the future. This critique targets the “Made in China 2025” plan, although Chinese Communist Party leaders have downplayed that plan’s influence.
Not surprisingly, China wants to move up the value chain. With a declining labor force, planners seek higher value-added businesses, increased productivity, and higher wages. Some steps, such as better and more enforceable IPR protection, if applied to all, could be mutually beneficial. More open research and higher standards for publication in China could help too. But other actions, ranging from stealing to protecting markets, cause big headaches.
We are already in the age of the Splinternet. I expect to see decoupling in telecom, Internet and ICT services, and 5G systems. We will all be worse off, however, if blanket bans and barriers supplant risk assessments. For example, anxieties over the use of Big Data could lead to ending cooperative and competitive innovation in the life sciences and other cutting-edge, beneficial sectors.
The best U.S. response to China’s innovation agenda is to strengthen our own capabilities and to draw the world’s talent, ideas, entrepreneurs, and venture capital to our shores. We will succeed by facing up to our own flaws, not by blaming others.