Blog Post

AEIdeas

“Peace in our time” would seem to be the guiding principle behind President Donald Trump’s cave to Chinese President Xi Jinping this past weekend. The Munich analogy is not perfect, as China already occupies the economic Sudetenland “commanding heights,” with its well-entrenched high-tech mercantilist protectionism.

The “incredible deal,” as it were, consists largely of promissory notes, including Beijing’s vague promise to buy many more US agricultural products and enter into 90-day negotiations with the United States over larger structural reforms. (China has not formally recognized the deadlines.) Further, according to the president, China also agreed to lower its auto tariffs, a gesture that will produce few additional exports as both GM and Ford will continue to concentrate on their substantial joint ventures to produce cars from Chinese factories. The administration also touted Xi’s agreement to curb sales of the lethal drug fentanyl, a key ingredient for opioids. This is an important decision, but a small gesture in the larger scheme of things.

Finally, in a truly cynical gesture, Beijing agreed to allow the merger of Qualcomm with NXP Semiconductor. For well over a year, China had refused to clear the merger, leaving Qualcomm finally to give up its quest. After the announcement on Saturday, Qualcomm stated emphatically that it was too late: The deal was dead. As I’ve noted in earlier blogs, it remains astonishing that the Trump administration, which touted Qualcomm as a national champion in 5G development, had not intervened to force China’s hand in this matter.

For these meager results, the Trump administration agreed to forego the imposition of 25 percent tariffs on over $200 billion in Chinese imports. The key going forward is to keep pressure on Beijing.

Even with the hardnosed US Trade Representative Robert Lighthizer leading the troops, negotiators will only scratch the surface of US-China challenges in 90 days. So much will depend on what transpires after the 90-day period. As substitutes for the self-inflicted wounds from tariffs, if negotiations drag out, the administration should push forward with other moves to attack Chinese anti-competitive practices. These moves could include, among others: rescinding the rescue of ZTE and forbidding US companies from supplying the company vital components; moving toward reciprocity in investment; closing US sectors and capital markets to Chinese high-tech companies such as Alibaba and Tencent; quickly producing a revised list of export controls that include key subsectors in semiconductors and related 5G technologies; barring all companies in a sector where intellectual property theft has occurred from the US market; and launching a series of legal challenges in the World Trade Organization, from taking on China’s Great Firewall (censorship) to violations of WTO IP rules, to key industrial subsidies.

Post-90 day action will be vital. Otherwise, the United States risks reenacting the famous, feckless Duke of York’s fate and limerick: “The Grand Old Duke of York, he had ten thousand men; He marched them up to the top of the hill, And he marched them down again.”

Hopefully, the mixed metaphors of Munich appeasement and Duke of York folly will not prove accurate.