A U.S.-China tariff war is sure to produce very real economic consequences, and political fallout, in both nations. It also presents an opportunity to reexamine the trade relationship between the world's two largest economies and perhaps set a new course that would address some of the elephant-in-the-room issues of China's trade practices.
Whatever else one might think of President Trump’s actions, he is confronting China about its unfair trade practices and theft of American intellectual property when too many others shy away from the truth for fear of Chinese reprisal.
This summer Trump imposed 25% tariffs on a total of $50 billion worth of Chinese goods, and Beijing retaliated. Trump is now considering adding more Chinese products — at least $200 billion worth — to that list. The response in the U.S. has been stock market volatility and hand-wringing about rising manufacturing costs and consumer prices.
It bears remembering that the Chinese trade practices that irk Trump truly do bedevil Americans and others doing business with China, and they go back decades, at least to the mid-1980s, when China under Deng Xiaoping was opening to the world.
Once the U.S. formally recognized the People’s Republic in 1978, American businesses were tantalized by the prospect of China's untapped market of 1 billion consumers. What American companies soon discovered, though, was that this trade partner did not play by the accepted rules.
The single best example of this disregard for rules remains McDonald's experience in the mid-1990s. The Beijing municipal government broke the company’s 20-year lease after just two years and effectively evicted McDonald's from its flagship, three-story, 700-seat restaurant in the heart of the capital to make way for a massive shopping complex. As a U.S. news report at the time said, "the dispute has come to epitomize an entrenched Chinese notion that terms of contracts can be altered at will."
Although the McDonald's example is just one case, we saw many similar situations firsthand when we were, respectively, a wire service reporter and a business executive in Beijing.
China’s repeated and unashamed theft of intellectual property has been especially egregious and damaging. A 2017 report by the independent and bipartisan U.S. Commission on the Theft of American Intellectual Property put the annual cost of IP theft by all parties at $255 billion to $600 billion in counterfeit goods, pirated software and stolen trade secrets; these figures do not include the full cost of patent infringement. The commission named China “the world's principle IP infringer.”
When Sino-American trade operated under the framework of "most-favored nation status," Congress conducted an annual review before continuing normal trade relations with China. This gave Washington a mechanism to pressure China to change unacceptable behavior in trade relations and human rights. That mechanism was rendered moot when Beijing won entry into the World Trade Organization in 2001. The WTO negotiations on China’s membership were the last, best chance to stop Chinese IP theft. But instead of refusing to admit Beijing until it took real steps to stop violations of IP rights, the WTO simply took China at its word that it would follow the rules that bind other members. The past 17 years have shown this to be a false promise.
A now-emboldened China is pushing its "Made in China 2025" campaign, an ambitious plan not only to upgrade Chinese industry — most notably in advanced sectors like information technology, robotics and pharmaceuticals, where IP is key — but to compete with and ultimately displace foreign companies domestically and globally. To that end, it has continued to aggressively push foreign companies to hand over technology and IP rights in exchange for market access — a possible violation of WTO rules.
China’s leaders no doubt see things very differently, and the Chinese expression “huo gai” might well apply. Loosely translated, it means “you had it coming.” If you leave your door unlocked and get burgled, huo gai — it was your own fault because you didn’t lock up. Similarly, if U.S. businesses do not take measures to protect their own intellectual property, it's huo gai if China waltzes in and makes off with it.
Trump's approach, while unpalatable to some and unsettling in the short term, could result in a much-needed new chapter in U.S.-China trade, one in which Beijing can be compelled to at least abide by the rules it agreed to when it won WTO membership. If nothing else, Trump has unequivocally called China out for behavior that should not be tolerated, and paved the way for other nations to do so too.
It appears that may have started to happen. News reports last week tracked an “unprecedented global backlash” against Chinese foreign investment, a “wariness … sharpened and accelerated by the Trump administration.”
The United States remains the one player that can effectively challenge China’s unfair practices. Trump’s tariffs have set the stage for policymakers, trade negotiators and China experts to develop a U.S.-led, worldwide strategy that is clear, forceful and has teeth, even if it means short-term economic hardship at home.
Charlene L. Fu is a freelance editor, reporter and translator. She worked in Beijing from 1986 to 2008, much of that time as an Associated Press correspondent. Curtis S. Chin, a former U.S. ambassador to the Asian Development Bank, is managing director of advisory firm RiverPeak Group. Twitter: @CurtisSChin