U.S.-China Economic Relationship About to Permanently …

1 A SYMPOSIUM OF VIEWS. Is the Economic Relationship About to Permanently Shrink? D. erek Scissors of the American Enterprise Institute makes the inter- esting case that after twenty-five years of enormous expansion, both the United States and China will soon reach the conclusion that the Relationship involves two incompatible forces. Indeed, Scissors argues that in the current trade dispute, both sides are close to the realization that whatever the deal, no agreement will last. The Trump Administration is a difficult negotiating partner because it is divided on China goals.

2 The Chinese were incorrectly led to believe that the trade hard-liners would be pacified by a few headline deals.. Meanwhile, the Chinese currency since May has plummeted 8 percent against the dollar. The Foreign Investment Risk Review Modernization Act was just enacted. Since 2016, Chinese investment in the United States has plummeted. Then there's Chinese President Xi Jinping who, Scissors argues, has cultivated the image of another Mao rather than another Deng. Translation: A strong-man autocrat who is not a believer in liberalized markets. Is Scissors correct that the Relationship is About to per- manently shrink?

3 And if so, how will this change affect the global order, including currency relationships, relative levels of Economic performance, and national security concerns? 18 THE INTERNATIONAL ECONOMY FALL 2018. Twenty distinguished global strategists consider the question, followed by a response from Derek Scissors. The answer depends on uses more than fifty unfair acts, policies, and practices that range from high tariff rates and non-tariff barriers to trans- China's willingness to shipment to evade United States antidumping duties. The bulk of these acts, policies, and practices are outside the embrace the market- norms of free and fair trade and disrupt not just the United oriented reforms that it States, but also the global economy.

4 The picture that emerges from the USTR's and the promised when it joined OTMP's analyses is one of a Chinese model that, by con- struction, derives much of its Economic growth at the the WTO. There can be expense of other nations. The key question, of course, is no half measures here. to what extent China will be willing to give up its unfair trade practices in any deal in exchange for continued ac- cess to markets. In OTMP's assessment, a core prob- PETER NAVARRO lem is that even if China ceases engaging in many of the Deputy Assistant to the President and Director of Trade and ways that it extracts jobs, technology, and wealth from the Manufacturing Policy, The White House United States, there are still many more tools of Economic aggression our businesses, workers, farmers, ranchers, I.

5 S the trade Relationship going to shrink, and entrepreneurs would have to contend with. as the American Enterprise Institute's Derek Scissors This need not be a stalemate, the pessimism of argues? The answer depends on China's willingness to Scissors notwithstanding, if China take serious steps to embrace the market-oriented reforms that it promised to address its unfair trade practices. However, the Chinese undertake when it joined the World Trade Organization side continues to deny that it engages in practices such as and fully commit more broadly to the principles and cyber intrusions and forced technology transfer despite practice of free, fair, and reciprocal trade.

6 Abundant evidence to the contrary. There can be no half measures here as the stakes are At the end of the day, the question is this: Will China simply too high for America's future. President Donald J. be willing to join the ranks of nations that embrace fair and Trump has made it clear he will no longer tolerate China's reciprocal trade and live up to the commitments it made to unfair trade practices, first and foremost its attempts to ac- the United States and the rest of the world when it joined quire America's technological crown jewels. the WTO?

7 Under President Trump's leadership, the United President Trump's 2017 National Security Strategy States is finally calling China to task, and other countries identified China for the first time as a strategic competitor, should do the same. Do not be fooled by China's claims that and the list of grievances in the technology space it is the biggest defender of the multilateral trading system. have been extensively documented in the landmark March The American public and business community fully 22, 2018, Section 301 investigation report published by understand the challenge facing America's long-term the United States Trade Representative.

8 Based on this and competitiveness. After decades of taking advantage of other public and government information, China's tactics the United States, there is now widespread public un- to gain control of technology include forced transfer, derstanding that America is being cheated. There is also state-directed and state-funded investment in cutting-edge broad bipartisan support, as well as increasing coopera- tech companies, and the cyber-enabled and direct tion amongst allies such as Japan and Europe, for theft of intellectual property, trade secrets, and confiden- standing up to China's behavior, particularly on issues tial business information.

9 Related to technological transfer and state-owned enter- In June 2018, the White House Office of Trade and prise behavior. Manufacturing Policy that I direct published a report en- President Trump will do what must be done to defend titled, How China's Economic Aggression Threatens this country. China must address these fundamental mar- the Technologies and Intellectual Property of the United ket barriers if it wants to continue to expand its Economic States and the World. This report assessed that China Relationship with us. FALL 2018 THE INTERNATIONAL ECONOMY 19.

10 My bet is that Skilled immigration could be another casualty of the Scissors vision. college applications show the wealth the United States of Chinese talent. If Economic ties shrink, student visas may well be tightened, just like H1-B visas, depriving the will suffer as much United States of highly promising scientists, engineers, and entrepreneurs. as China from Only Peter Navarro's acolytes will celebrate shrink- ing Economic ties if that's what the future shrinking holds. Other Americans should lament the multiple losses that could have become our Economic gains.