Trump Can’t Decide What He Wants from China
Some of his policies point to deeper integration, some to decoupling. He’ll need to pick one—or fail at both.
Sometime early next month, U.S. and Chinese negotiators will once again sit down and attempt to hammer out a resolution to the countries’ ongoing trade dispute. When they do, American negotiators will push a familiar list of demands: better treatment of U.S. companies, tighter regulations on state subsidies for Chinese industries, and more purchases of American commodities such as soybeans and oil. Yet the long-term strategic objective of the trade war remains as clouded as ever.
The basic question is this: Does the Trump administration want deeper economic integration between the United States and China, or to unwind the existing interdependence of the world’s largest economies? This is arguably the biggest question in American foreign policy today, and the Trump administration has provided conflicting signals on its ultimate motivations.
On the one hand, U.S. President Donald Trump’s trade negotiators are aggressively pushing the Chinese government to open up, buy more American goods, and generally make it easier for American companies to do business there. While Trump’s tariffs have thrown a wrench into trade between American and Chinese firms, Trump has always argued that this tactic is needed to pressure China into offering the United States a better deal. If China concedes to U.S. demands in trade negotiations, the logical outcome would be more American companies shifting production to China, and further entwining of the American and Chinese economies.
On the other hand, Trump’s national-security team—although largely quiet on the trade war—are in the midst of reorienting American foreign policy around long-term strategic competition with China. Meanwhile, “decoupling”—meaning actively minimizing the economic ties between the United States and China—is the new buzzword in Washington. But that is the exact opposite of what Trump’s trade team claims to be after. Is China a fundamental security threat that demands the United States sever economic ties, or is it a promising market that the United States should be beating down the doors to access? The Trump administration can’t seem to decide.
The Huawei case exemplifies the inconsistencies in current U.S. policy. The Trump administration has labeled the telecommunications firm a national-security threat, and the National Intelligence Council is busy running war games about how to respond to the threat of Huawei’s rising influence. Yet at the same time, the administration has also suggested that Huawei could be a valuable bargaining chip in the trade war, and has explicitly linked loosening Huawei restrictions to more Chinese purchases of agricultural goods. Washington can’t have it both ways.
In principle, one way to square this circle would be if China could make concessions during the trade negotiations that alleviate the United States’ broader foreign-policy concerns, thus paving the way for deeper economic integration. In practice, however, this is all but impossible. The core issue that animates the strategic concerns about economic interdependence with China—namely an increasingly authoritarian and powerful Chinese Communist Party that both commands its own domestic economy and is expanding its reach abroad through the Belt and Road Initiative—will not be negotiated away by China’s leaders. Whatever promises Chinese negotiators might make in a hypothetical trade deal with the Trump administration, the essential nature of China’s party-dominated economy is not going to change. Rather than hoping American pressure and cajoling is going to miraculously transform China’s political and economic system, U.S. policymakers need a strategy that deals with China as it is.
The United States needs to decide whether deep U.S. economic engagement with China is a strategic liability and, if it is, what cost the country should be willing to pay to extricate itself. Trump’s decision to launch a trade war with China before resolving these fundamental questions is one of the bigger foreign-policy missteps of his presidency. The trade war could end up producing either more or less economic integration between the two countries, which may or may not be in America’s long-term strategic interest. Given that, it will be impossible to know whether it has even succeeded on its own terms.
Ultimately, over the longer term, some level of decoupling between the U.S. and Chinese economies is likely, whatever happens in the current trade war, and whoever wins the 2020 election. Ever-deepening economic integration between the world’s two competing super powers, each with very different economic systems, is unsustainable. Decoupling, however, is not a binary outcome, and understanding the nuances of different policy options—including their risks and costs—is crucial. For example, the administration could work to decouple specific industries deemed strategically important—cutting-edge technologies, for example, or energy. Others—such as basic manufacturing or agriculture—might be left alone. Similarly, some forms of economic integration, such as trade, might be deemed to pose less risks than others, such as foreign investment and migration. Advocates of decoupling should also think carefully about who specifically is likely to bear the costs of disengagement—which companies and workers, in what parts of the country—and how these adjustment costs can be alleviated. And they should assess how any U.S.-Chinese decoupling will influence American economic and political relations with other countries, both allies and competitors.
At this point, of course, the Trump administration seems unlikely to craft a nuanced cost-benefit analysis of different forms of decoupling; the core drivers of Trump’s approach to China is balancing the need to appear tough with the need to deliver a negotiated win. But the Washington policymaking community, and the candidates who hope to replace Trump at the next election, should be thinking critically about what U.S.-Chinese decoupling might look like in practice, and developing plans for assessing the risks and opportunities of economic engagement.