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One of my currencies is: Do not criticize anything unless you have a better idea. I have decried the pricing tactics of President Donald Trump, so it's just that I offer my own strategy to wage a trade war with China – with a greater chance of success and a lower downside risk.
Trump is right about China but wrong in his method. Yes, Beijing is engaging in unfair trade and business practices. Yes, we must do something. But tariffs, swaggering and threats are not likely to inflict enough damage to force China to change.
A better plan would be to adopt the same restrictions for Chinese companies in the United States as Beijing imposes on foreign companies. In other words: Give the country a taste of its own bad medicines.
It would work like this: In industries where China forces foreign companies to form joint ventures with local partners – such as auto manufacturing or stock trading – Washington would do the same. It means a Chinese company like Geely Automobile Holdings Ltd., which this month Opened a Volvo factory in Charleston, South Carolina, would have to connect with General Motors Co., Ford Motor Co. or another American company.
In industries where Beijing prohibits foreign investment, such as film production companies or Internet media, the United States would ban Chinese investors.
Beijing runs foreign companies through a glove of requirements much more intrusive than the international standard. For example, when seeking a license, they must disclose unusually detailed information about their manufacturing processes and products, which makes them vulnerable to intellectual property theft. Such restrictions should also be imposed on Chinese companies in the United States.
It is highly unlikely that an American company will be allowed to acquire a large Chinese company in the technology sector or another industry considered to be sensitive or important even if there is no business. 39, official obstacles. Washington can use the US Foreign Investment Committee, which controls acquisitions for reasons of national security, to block purchases that would not be accepted if positions were reversed.
The Chinese government would be politely informed that Washington would be more than happy to abolish these regulations – once Beijing lifted its own restrictions.
There are elements of this approach in Trump's program. His administration plans to limit Chinese investment in the US technology sector. But my plan has obvious advantages.
First, it will not inflict so much damage on the US economy. Trump's rates will increase prices for consumers and the growth of teeth and jobs.
Second, he holds the height. Since Washington would do nothing more than match Beijing's restrictions, my way of doing things would hurt any attempt to portray the United States as the bad guy.
Third, I would hit China where it hurts most. Companies that want to become global need the US market and technology. To deny them would be a blow to the country's economic program. With their wings cut off, Chinese CEOs could put pressure on their government for faster reform.
Fourth, my plan keeps an eye on the price: put an end to the abuses of China by American companies. Trump's influence was weakened by his competing priorities and his overwhelming desire to quickly reduce the trade deficit. It is much more important to open the Chinese market and ensure fair treatment of foreign companies. This would reduce the trade imbalance over time.
Of course, no approach is a safe bet. Beijing could ignore the reciprocal nature of my program and retaliate anyway. Chinese companies that have invested in the United States could take their capital elsewhere (indeed, it is already in progress).
This is why any attempt at hardening would be better coordinated by the United States and its allies in Europe and Asia. Isolating Beijing would greatly increase the pressure for concessions.
So, too, would soften the rhetoric. Trump's tweet-all-about-it tactics reinforce resistance to compromise among Chinese authorities with thin skin. A stealthy strategy may not score as many national political points, but should probably score more victories.
At some point, tariffs may become necessary to counter the mbadive financial badistance that China gives to businesses in certain sectors. But for the moment, there are better tools available. Trump should use them.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Michael Schuman to [email protected]
To contact the editor responsible for this story:
Matthew Brooker to [email protected]
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