A good start but US, China should address real issues

Washington and Beijing have agreed to abandon their trade war and back off from imposing tariffs on each other. The message is being relayed at the end of talks between the US and China, and might appear to be a win-win for both sides. But it is not. The Chinese delegation led by Vice-Premier Liu He has agreed to look at increasing “US agriculture and energy exports” but did not commit to reducing the trade deficit with America, which is what Washington has been seeking. The Chinese delegation instead has committed to lowering tariffs and removing trade barriers for US exports. It is a drip-feed approach that might make the Chinese side look good for now, and give them more time to keep the Trump administration engaged without provoking any more threats of higher tariffs or sanctions. The US and China run a trade deficit of over $375 billion, and President Trump has been insisting on reducing it substantially.

This, however, is a flawed argument to begin with. Trump has been focusing largely on America’s manufacturing sector. Insisting that Chinese buy more of American goods worth billions will not help, rather it might be counter-productive as economists believe that America is almost running at capacity and might not be able to cater to the increased demand from China. Increasing imports from China will not create jobs or benefit American companies. The Trump administration instead should be looking at promoting the services sector. It has a strong financial sector, but China isn’t open to foreign competition in this space. America should also aim at the Made in China 2025 vision. It should persuade Beijing to introduce investor-friendly policies, reduce government interference, and address the issues of intellectual property rights and investment flows. Why should foreign firms have to hand over trade secrets on a platter to the Chinese in order to access their markets? Negotiations should happen on this front. No one wins in a trade war, and Chinese leaders understand it well. The delegation has played well to the binary approach of the Trump administration that is not working to address the real issues that confront it.