Trade Disputes Are at the Heart of Washington's New Diplomacy

By Cameron Munter

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As the United States and China close in on a trade deal, it will be interesting to see how far Beijing is willing to go to accommodate American demands, given that China has clear long-term goals and believes time is on its side. The U.S. trade wars are almost certain to continue, with a series of trade negotiations following an agreement with China. Among them: Japan, the European Union and the United Kingdom. Trade disputes are at the heart of the Trump administration's diplomacy, which seeks to rebuild U.S. competitiveness and dominance by rejecting previously accepted global rules.

Reports indicate that the United States and China are closing in on a trade deal that will block new tariffs on Chinese goods entering the United States. But, as we saw at the summit between President Donald Trump and North Korean leader Kim Jong Un in Hanoi, Vietnam, in late February, nothing is finished until signatures are put to paper — in this case, a formal trade agreement. It is a self-conscious hallmark of Trump's diplomatic style that unpredictability is a key element of negotiation, and wrong-footing the adversary is just part of the way in which one wins the best possible deal.

Assuming the Americans and the Chinese come to an agreement, terms will almost certainly include arrangements for the Chinese to purchase more American goods — from soybeans to Boeings — with the express goal of narrowing the trade deficit between the two countries. Similarly, the press has speculated about arrangements to prevent, or at least minimize, Chinese currency manipulation, resulting in fairer and more transparent pricing.

How Far Is China Willing to Go?

It will be interesting to see if the Chinese go further to meet American demands for outside investor access to previously restricted sectors of the Chinese economy. Whether the Chinese can instate safeguards that convince American investors that their intellectual property rights will be protected, whether U.S. firms will not feel they're being compelled to deliver trade secrets as a price for entering into a joint venture or other investment arrangements, and whether mechanisms can be put in place that reassure Americans about dual-use products remain to be seen.

China has very clear ideas about where it wants to be and what it wants to achieve in the decades to come. As such, it may adjust temporarily and accommodate Trump's needs — but not at the price of altering its long-term goals.

To this end, I remain skeptical that the Chinese are willing to compromise on issues that were the centerpiece of the 19th Party Congress in 2017 — those elements of the "Made in China 2025" package, or longer-term strategic commitments made for 2035 or 2049.

If a trade deal with China happens, will the Trump administration rest on its laurels? Not likely.

It's one thing to buy your way out of a problem, such as agreeing to purchase goods from America, and quite another to change what was publicly stated as the fundamental "core interest" of the strategic plan laid out by the Communist Party. Yet, Chinese officials make it clear that they don't want a fight with the Americans. Believing in the long run that time is on their side, they need not risk conflict that could get out of hand. It will be a measure of their negotiating skills, as they try to draw closer to an agreement.

If that happens — if Trump is able to greet President Xi Jinping at Mar-a-Lago to sign an agreement of the sort that eluded him in Hanoi with Kim — will the Americans rest on their laurels? Not likely.

Next in Line

After China, we may see the Japanese, the Europeans and the United Kingdom — even amid the unfolding Brexit drama — step in to fill the American void. The spectacle of serial trade negotiations is arguably something of domestic consumption in the United States, a manifestation of electioneering that indicates the president is standing up for his constituents. In this case, talks might resemble the U.S.-South Korea or the trilateral NAFTA negotiations, with final agreements that lack substantive change. Whatever the reason, the "Charge of the Lighthizer Brigade" is almost certain to continue.

More than the actual agreements, the broader implication of these trade disputes is the balance of international order following in their wake. Primarily, what happens to relations among nations when the defining element of those relations are the hard-nosed expression of economic interests?

For 70 years, the basis of diplomatic contacts — among allies, certainly, and among adversaries, often — has been the search for common ground, the effort not just to reach some degree of understanding about present-day issues, but also to prepare for tomorrow's unforeseen challenges through the expression of shared interests. Now we may find out what happens when a new approach to foreign policy becomes standard practice for the most powerful country in the world — an illustration of bilateral, not multilateral focus.

So, don't expect the U.S.-China accord — if there is one — to be the end of trade disputes, no matter the dollar impact on the U.S. economy or the wobbliness such uncertainty imparts on stock markets. It's at the heart of Washington's new diplomacy — a diplomacy seeking to rebuild U.S economic competitiveness and dominance, dismissing previously accepted rules of global trade and bracing America's opponents and allies for change. The Trump-Xi summit in Mar-a-Lago, if it takes place, may go a long way to foreshadow if the strategy bodes well for U.S. and global economic interests.