U.S. and China Should Declare a Trade Truce

U.S. President Donald Trump says he’s hoping that trade talks planned to resume in Washington this week will lead to a “big deal” with China. At the moment, even a small deal looks pretty ambitious, as the White House keeps escalating the fight rather than trying to calm things down. With the costs mounting, a cessation of hostilities should be the top priority.

Trump’s trade war is already doing real damage to the U.S. economy. American factories are operating at their lowest rate in a decade as demand abroad slumps. U.S. farmers are hurting. Business investment is down. While some factories are leaving China to dodge tariffs, they’re moving to Southeast Asia and elsewhere in the developing world, not the U.S. The damage is global, affecting confidence in Europe and other regions. The International Monetary Fund and World Bank are lowering growth forecasts for this year and next.

There’s little sign yet of progress. China’s leaders seem even less inclined to address U.S. demands for structural reforms than they were this spring, partly because they question Trump’s willingness to honor any compromise that might be reached. Meantime the U.S. administration has rattled financial markets — yet again — by prohibiting U.S. firms from doing business with eight Chinese technology companies, weighing restrictions on U.S. capital flows to China, and announcing visa restrictions on Chinese officials linked to the detention of Muslims in Xinjiang province.

Next week, the U.S. is scheduled to raise tariffs on $250 billion in Chinese goods from 25% to 30%. Trump has promised to extend tariffs to virtually all Chinese imports by mid-December. He and Chinese President Xi Jinping are due to meet next month. That could be the last opportunity to restore a workable relationship before the U.S. moves into full pre-election mode, and the prospects for agreement dim further.

China needs a deal as much as the U.S., and many of the so-called concessions that the U.S. is demanding dovetail with Beijing’s own stated goals. At a minimum, Beijing should agree to uphold the commitments on intellectual property and technology transfer that the two sides reached earlier this year. It should keep opening its markets for goods and services and, to improve the political atmosphere, increase purchases of soybeans and other U.S. agricultural products. Other more contentious issues — including the new export controls — should be kept separate, not merged into the trade talks.

The U.S. should bend too, accepting that a small deal is very much better than none. It has legitimate and addressable complaints about China’s trading practices, but can’t expect to dictate root-and-branch changes in the country’s basic model of state-led growth. Tariffs were never the right lever anyway, precisely because they hurt U.S. consumers and businesses more than they harm their Chinese counterparts. Instead, the administration should focus on working with allies to make the World Trade Organization a more effective enforcer of trade rules, and strive to become a more competitive producer, not least by beefing up its spending on domestic innovation and R&D.

No trade deal, however big, is going to resolve all of the multiplying rifts in the U.S.-China relationship. But Trump’s trade war is only making things worse. For the U.S., China and the world, de-escalation is an urgent economic necessity.

—Editors: Nisid Hajari, Clive Crook.

To contact the senior editor responsible for Bloomberg Opinion’s editorials: David Shipley at
[email protected]

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