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OOn Friday, markets jumped in response to the announcement of a potential deal to end the ongoing trade war between the United States and China. Naturally, investors are happy to hear that. But China's proposal to increase imports of US goods and reduce the US trade deficit with China will not solve any of the fundamental problems that triggered the trade war.
Is China cheating on trade? Certainly – and unfortunately, this proposal will not prevent Beijing from doing so. This only satisfies President Trump's obsession with the trade deficit.
But trade deficits are not an economic problem. They reflect the fact that American consumers, with more purchasing power than their Chinese counterparts, buy more goods. When Chinese companies take advantage of these expenses, they are looking for cost-effective ways to invest that money. This means that they often turn to the United States, which enjoys a strong economy and currency, investing in businesses, in real estate and in the US. industry. This investment is a good thing for the economy.
But that does not mean that there is no real problem with Chinese trade.
As Trump pointed out, Chinese companies have repeatedly committed to forced technology transfers, forcing US companies to give up their intellectual property to their Chinese counterparts in exchange for market access. Chinese companies have also stolen stolen technologies on behalf of US and foreign companies. In addition, China confers unjust legal benefits to its own enterprises with state support. They exclude foreign competitors almost completely from certain markets, such as the Internet, and do not respect the protections of intellectual property.
Most worrisome perhaps is that China has also resorted to interactions with foreign companies to improve military security and the security of the state. Companies that use foreign technology have been involved in sharing this technology with the Chinese army. Other Chinese companies, including Huawei, have recently been accused of violating international sanctions, of supporting rogue states such as Iran and of having acted as that threatens state-sponsored espionage while she was collaborating with countries to deploy 5G networks.
These are very real and serious concerns, and none of them are addressed in the current proposal.
Investors, however, seem satisfied with the possibility of ending the trade war that costs the economy at least $ 1.4 billion a month. But this agreement, far from being an economic panacea, could actually exacerbate some of the real problems. Indeed, the United States has already taken steps to limit the number of types of goods that can be exported to China for fear of using them in military operations.
Even if the United States joins the current agreement and ends tariffs, Washington will eventually have to deal with real trade issues raised by China. With this proposed deal, China plays the role of Trump in its own game: exposing its misguided understanding of trade deficits while proposing a "solution" that does not solve any of the real trade problems.
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