China Doesn't Want to Play by the World's Rules

BY ABIGAIL GRACE

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U.S. President Donald Trump’s most recent threat to target all $505 billion in annual Chinese imports to the United States is only the latest development in the looming U.S.-China trade war. While Trump and his team are preparing for an economic competition focused largely on tariffs, policymakers must prepare for a multi-domain competition rooted in Chinese political posturing, domestic propaganda, and economic coercion targeting American firms operating in China. These unconventional challenges will demand a comprehensive U.S. response.

Many Americans agree that solving the distorted U.S.-China economic relationship is critical. But the answer isn’t to be found in trade alone. The root of this problem is not the deficit, but China’s deeply held belief that it is not beholden to the same rules as other nations.

In the trade war, the U.S. toolbox remains limited in comparison to what China’s state-directed economy can wield. Trump remains politically constrained by a Congress understandably eager to roll back his tariffs on U.S. allies, and he is fighting pushback from the U.S. private sector, keen to protect its investment in China at all costs. In contrast, Chinese President Xi Jinping sits at the top of an authoritarian system that enables him to implement policy virtually unchecked. The vast reach of the CCP’s apparatus can be used to support behavior that falls outside of World Trade Organization norms, such as boycott measures, baseless customs restrictions, and export bans, in the pursuit of victory.

To date, China has responded to U.S. tariffs dollar for dollar. The pending round of $200 billion in additional tariffs will be challenging for China to match, given the trade imbalance. Chinese officials have publicly stated that they intend to take “qualitative” measures in response to U.S. tariffs. If these measures look anything like China’s past actions targeting South Korea’s Lotte Mart stores, Japan’s rare earth minerals, and Norwegian salmon, we should anticipate massive state-enabled economic coercion targeting U.S. private-sector interests operating in China.

China’s counter-tariffs targeting the United States also reek of the same societally divisive techniques Russia employed prior to the 2016 U.S. election. When mapping those industries affected most by China’s first tranche of tariffs, which included automobiles, lobster, and other agricultural products, low-income Americans from swing states stand to lose the most. This isn’t a coincidence. Chinese policymakers know that today’s United States is divided and are betting that pitting Americans against one another is a winning strategy for Beijing.

Yet China’s motivations for investing in next-generation “national champions” and other industries supported by the Made in China 2025 industrial policy transcend economics. One of Xi’s top objectives is to develop China into a “modern socialist country” by 2035 and transform the country into a more powerful nation by 2050. China’s own official documents publicly acknowledge that the country will not be able to achieve these development goals without diversifying away from low-value manufacturing. This is an understandable aspiration; every nation seeks to develop its own economy. However, Beijing’s zero-sum view of technological development is likely to impair others seeking to climb the same ladder. China doesn’t just want to change the rules; it wants to write them itself.

This focus on securing economic growth is a question of existential importance for Xi and his comrades.

This focus on securing economic growth is a question of existential importance for Xi and his comrades. The Chinese Communist Party knows that it must deliver a higher quality of life to Chinese citizens in order to retain popular support—or else increase repression of internal dissent. Xi has personally staked out hypernationalist positions and silenced any opposition to his authority, thereby increasing his own personal culpability for losses in a trade war. In fact, rumors that Xi could be facing domestic political trouble have abounded in recent weeks, raising questions about the costs of his shift away from the collective leadership model.

China’s leadership knows that addressing the U.S.-China trade imbalance is a personal priority for Trump and is priming its own population for a long and ugly fight. Recent pieces from China’s leading state-controlled newspapers assure Chinese citizens that they can “afford the cost of the trade war,” “determine the true perpetrators … to create the greatest damage,” and “repulse” the United States “in every ‘battle.’” China’s Ministry of Commerce publicly announced that revenues raised from tariffs on U.S. goods will be directed to a fund compensating Chinese businesses negatively affected by the trade war.

Despite U.S. pressure, China remains committed to its own economic agenda because it believes that achieving technological supremacy today will enable it to write tomorrow’s rules.

Beijing’s frequent attacks on the rules-based international order lay bare China’s disdain for the status quo. In the aftermath of World War II, the United States—enabled by its wealth, military might, and unity of purpose—led the development of a postwar international order. Chinese leadership believes that its own interests were not represented at key moments during the development of this system, in part due to China’s own self-described backward development and the existence of “hostile” U.S. policy excluding the People’s Republic of China from the United Nations from 1949 to 1971.

China has taken similar steps to erode the quality of standards at international economic institutions, namely the WTO. Beijing continues to assert that it should be granted market economy status at the WTO despite its refusal to implement important benchmarks for further economic reform, initially outlined in the Third and Fourth Plenum reports of the 18th Party Congress. For all its flaws, the post-World War II order has succeeded in making the world a more prosperous and secure place, nominally devoted to liberal democratic values and the inherent worth and autonomy of the individual. China’s political priorities continue to stand in direct contrast to this concept of open governance.

Chinese state planning documents acknowledge that the upcoming technological revolution gives China a critical opportunity to gain ground. Policymakers believe that an entirely new set of norms and standards will be drafted alongside an ongoing artificial intelligence revolution, which will govern commerce and political behavior in the coming decades. As long as Chinese leaders think that the key to winning tomorrow is dominating today’s technology through all means short of war, they will remain unwilling to address the structural issues driving economic tensions between the United States and China.

Instead of pursuing a strategy predicated on tariffs, the Trump administration would be wise to reconsider levying significant asymmetric diplomatic costs, imposing tougher investment restrictions, and redoubling market access advocacy measures.

It’s up to Americans to remember that succumbing to Chinese influence campaigns will only plunge the nation deeper into partisanship. All in all, U.S. policymakers are severely misguided if they think that tariffs, or any economic tool alone, will force China to change course. Beijing’s leadership is on a mission much bigger than the U.S.-China trade war. Policymakers must acknowledge this and face China’s broader revisionist agenda head-on.