Earlier this month, the United States imposed 25% tariffs
on $200 billion worth of imports from China and is threatening tariffs on an additional $325 billion
in Chinese goods. China retaliated, promising to raise tariffs further on $60 billion
in US exports.
Dealing with China is the defining challenge for the global economy. China cuts out exports and investment from the Chinese market, steals intellectual property (IP), forces businesses
to transfer technology and subsidizes
its companies. This gives Chinese firms an unfair competitive advantage. Such tactics are either difficult for the World Trade Organization (WTO) to police, or, in many instances, the organization's rules don't cover such behavior. The case for US leadership here is clear. China claims that a new law
will aim to curb these practices, though many are skeptical of its effectiveness.
But a successful deal between the United States and China must include reforms to China's own subsidization strategy and the role of state-owned enterprises, improved IP protection and the free flow of data. Making progress in these areas was always going to be hard. There are enormous vested interests in the status quo in China, and reforms could affect the Chinese Communist Party's control over the economy.
Yet the president has entered the fray unprepared and unnecessarily handicapped. The administration failed to prepare the United States for the duration or cost of the challenge. It has unilaterally disarmed itself by withdrawing from the Trans-Pacific Partnership (TPP), and gratuitously hurt allies such as the EU, Japan
and Canada by raising tariffs on their goods — the tariffs on Canada were just lifted
— and hurling personal insults, making it harder to form a united front on these China trade issues.