Ending the Trade War: Grand Bargain or Baby Steps?

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Working on Capitol Hill, I learned that recycling is not just for paper, plastics, and metals. It is also for words. Never use something once if you can use it two or three times is common practice. In that spirit, this week’s column tracks, with some changes, a short piece I was asked to write about U.S.-China trade that focuses on solutions rather than problems. This turned out to be a daunting task since it is hard to see any solutions being likely in the short term, given the sad state of U.S.-China relations. Plus, this is an election year here in the United States, which is not the time for major changes in policy. More likely, candidates at all levels will try to outdo each other in criticizing China. Nevertheless, dwelling endlessly on the problems is not a way forward. Thinking about solutions is more constructive, however unlikely they may be right now. This piece suggests two possible ways to go.

Trade and security have been conflated over the past few years to the point where it is difficult to discuss trade with China without linking it to national security issues. That linkage makes it impossible to resolve trade issues by themselves. One potential step forward would be to untangle trade and security and try to address the former on its own terms.

There are two options to doing that and trying to end, or at least mitigate, the trade war with China: the “grand bargain” or the “baby steps” approach. The grand bargain is where both sides give up something important to get something important. The baby steps, or incremental, approach involves each side taking successive, small confidence-building measures in the hope they will lead to broader agreements.

An example of a grand bargain would be the United States agreeing to eliminate its Section 301 and Section 232 tariffs on Chinese imports; regular most-favored nation (MFN) tariffs and those resulting from antidumping or countervailing duty investigations will still be retained in return for China’s commitment to stop all intellectual property (IP) theft and agreement not to contest a unilateral U.S. process that would exclude imports from the U.S. market if they are found to be the beneficiary of stolen IP. China has made that promise in the past and largely ignored it, so it is important to attach to it a mechanism the United States can employ to create practical consequences if the promise is not kept.

Such a bargain would give each side something important that it wants without compromising national security on either side, without forcing fundamental economic change on the Chinese side, and without causing undue harm to the United States since the removal of those tariffs would simply restore tariffs to pre-2018 levels.

An incremental, baby-steps approach has actually already begun through the establishment (or resurrection) of bilateral dialogues between Washington and Beijing. Secretary of Commerce Gina Raimondo started two during her visit to China last August, and Secretary of Treasury Janet Yellen has started three. Some other older dialogues have restarted. At best, these dialogues will be confidence-building measures that will clarify the economic issues that divide the two countries, improve each side’s understanding of the other’s point of view, and perhaps point the way to resolution of the issues the dialogues identify.

A second step would be to turn the successful dialogues into working groups each charged with tackling a specific issue, and each having a deadline to report to senior officials on their progress. A third step would be to elevate the working groups’ results, if any, to the ministerial level and turn them into a formal negotiation that would hopefully lead to an agreement. If successful, the two countries could take a fourth step by starting new dialogues on different issues and trying to repeat the process.

If you have read this far, you are probably thinking none of that is going to work. The differences are too great, and the atmosphere is too cluttered with other issues. And you would be right. A grand bargain is certainly out of reach; it is likely that some, if not most, of the dialogues will not progress far enough to get beyond either the first or second step, but the incremental approach does outline a possible way forward if the two countries want to try to resolve their differences on specific issues one by one.

The idea underlying both options is that progress is only possible if the two sides can separate trade problems from national security issues, which would permit them to tackle the former without being accused of compromising the latter. Of course, in an election year, any move will be criticized by the opposition as undermining U.S. security, so do not look for testing these options in 2024. Post-election, it will be worth a re-visit because the problems are not going away, and, eventually, we will have to confront them.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.