Mosher: Don’t Trust China on Trade Talks, Verify Everything

China’s Vice Minister of Commerce Wang Shouwen spent two days in Washington last week, resuming U.S.-China trade talks that broke down three months ago.

In May, Trump’s Dream Team of negotiators had gone to China with a list of eight demands, including ending advanced technology subsidies, sharply lowering tariffs, and cutting $200 billion from their annual trade surplus with the U.S. by 2020.

In response, the Chinese concocted exactly eight demands of their own, and the talks went nowhere.

There is little doubt that this outcome was exactly what Beijing had in mind. Why would it not stall, when it was racking up another billion or so in trade surpluses with each day that passed?

Now the Chinese are back at the negotiating table, and it is important to understand why: It is President Trump’s threat of additional tariffs — and only that threat – that has brought them around.

“A thousand requests don’t work as well as one threat,” is a well-known Chinese saying.

The increased tariffs to date have already clipped as much as a half percent off of China’s economic growth. The country’s industrial output, retail sales, and investment are all falling below forecasts. Its stock market is tanking, and its currency is weakening.

If President Trump slaps a 25 percent tariff on all Chinese imports, as he has threatened to do, it could cut an entire percentage point or more off of China’s economic growth.

While China is now operating from a position of increasing weakness, America is negotiating from a position of growing strength. Trump’s policies and the booming economy they have created have tilted the world in America’s direction. Even the EU — whose member states have also been victimized by China’s predatory trading practices — is joining an informal coalition to pressure the Chinese.

This does not mean that Trump’s negotiators should compromise on his demands. Nor that the Chinese Party-State, although relatively weaker of late, poses any less of a threat to the existing world order.

For one, Beijing’s chief negotiators pride themselves on their skill in winning sympathy – and sweetheart deals – from “naïve” Westerners.

They will attempt to win concessions on trade by declaring themselves to be a “poor, developing country.” This is, of course, nonsense. The Chinese economy is the second-largest in the world; its military the world’s largest.

They will attempt to turn our own rhetoric against us, lecturing us on the need to practice “free trade” and piously expressing their hope for a “win-win” agreement. They will say these things even though they are themselves engaging in one of the most brutal “beggar-thy-neighbor” policies the world has ever seen.

Beijing’s idea of the perfect “win-win” agreement is that China wins twice: first in the negotiations and then by cheating. The only thing that is certain about any understanding that Washington reaches with Beijing is that Beijing will cheat.

Why am I so sure? Because much of what the Trump administration is asking China to do – from strengthening intellectual property protections and lowering tariffs to opening up its service and agricultural sectors to full American competition – China has been promising to do since it first applied to join the World Trade Organization in 1995.

That was 23 years ago and it still hasn’t happened.

China is like the boxer who agrees to fight by Marquis of Queensbury rules and then bites, gouges and crotch-kicks his way to victory. And counts himself clever in doing so.

Given China’s long history of cheating, Trump has astutely added a new twist to the current round of negotiations. He is insisting that Xi Jinping cut his country’s trade surplus with the U.S. by $200 billion by 2020. This is to be done in two steps, with a $100 billion reduction by the end of 2019 and another $100 billion reduction to follow in 2020.

Those who criticize the idea of an orchestrated cut in China’s trade surplus as “economically nonsensical” obviously have no idea how China’s command economy actually works.

President Trump knows that Xi can easily order China’s state-owned enterprises, which account for about 40 percent of China’s GDP, to increase their imports of American products. He can strongarm the nominally private sector into compliance, as well. And he will do exactly that if he comes to understand that China’s continued access to the largest consumer market in the world depends on it.

To understand why Trump’s new demand is so essential, just ask yourself: which is more likely to happen?

That the one-party dictatorship that rules China suddenly decides to abandon central planning, privatize its state-owned enterprises, respect the rule of law, and move decisively towards a market-based economy.

Or that it decides, in order to stave off the devastating impact of additional tariffs, to buy American.

Obviously, America’s negotiators should continue to insist that China agree to our other demands, each of which addresses an important element of the economic warfare that Beijing is waging against the U.S. But even if China’s leaders agree to our demand, for example, that they “take ‘immediate, verifiable steps’ to halt cyberespionage into commercial networks in the United States,” it would be foolish to assume that they will do so.

China is a civilizational empire that operates by its own rules. Its mandarins may be forced to bow to overbearing barbarians; that does not mean that they will actually comply with their demands.

President Ronald Reagan, for whom I wrote a couple of speeches, summarized his view of negotiations with the Soviet Union as “trust but verify.”

Given that our principal adversary is now even less trustworthy, Reagan’s watchword needs to be updated.

“Don’t trust, verify everything,” needs to become the rule in dealing with Chinese Party-State.

Of the trade demands that America has put on the table, only one is easily verifiable.

If Xi Jinping orders a top-down, forced-pace reduction in the trade deficit, the results will be immediate and obvious. Orders will pour into America’s factories and farms. Over time, sectors of the Chinese economy now closed to American competition will be opened.

And all the while we will be watching — not just trusting — and verifying everything.

Steven W. Mosher is the President of the Population Research Institute and the author of Bully of Asia: Why China’s Dream is the New Threat to World Order.