Amid increasing tensions between Washington and Beijing over economic and security matters, Chinese President Xi Jinping is in Florida today and tomorrow for meetings with President Trump. Although economic frictions between the world’s two largest economies are nothing new, the safeguards that have helped prevent those frictions from sparking an explosion and plunging the relationship into the protectionist abyss may no longer be reliable.
As I noted in this recent Cato Free Trade Bulletin:
Never have the U.S. and Chinese economies been more interdependent than they are today. Never has the value of the bilateral trade and investment relationship been greater. Never has the precarious state of the global economy required comity between the United States and China more than it does now. Yet, with Donald J. Trump ascending to power on a platform of nationalism and protectionism, never have the stars been so perfectly aligned for the relationship to descend into a devastating trade war.
What are those safeguards and why might they no longer be reliable?
First, U.S. multinational business interests that used to favor treading lightly with China, and provided a policy counterweight to U.S. import-competing industries advocating protectionism, have grown disillusioned by the persistence of policies that continue to impede their success in Chinese markets. Many think a more aggressive posture from Washington, even if that makes matters worse for them in the short run, is overdue.
Second, the pro-China-trade lobbies in Washington have grown sheepish in their advocacy on account of an economic study that went viral last year, ascribing massive U.S. jobs losses to trade with China, and because many fear political retribution from challenging Trump’s assumptions. Full-throated support for the relationship has become conditional support.
Third, now more than ever before, U.S. policymakers, media, and the public are less inclined to look at the bilateral economic relationship in isolation from the strategic and geopolitical aspects of the relationship. Segregating the issues in the past allowed us to focus on the win-win elements of trade, where there was broad enough agreement that mutual benefits could be derived, without being distracted by the issues where the United States and China are less likely to agree. Today, our economic frictions are viewed through the prism of our geopolitical differences – and that makes trade disputes more difficult to manage.