Trump and Xi Can Help Each Other on Trade
Chinese President Xi Jinping delighted the Davos set last Tuesday with a full-throated defense of “economic globalization.” If President Donald Trump really wants to boost American prosperity, he should welcome Xi’s position, urge him to stick to it, and apply the same ideas to U.S. trade policy.
Sure, one can wonder whether Xi’s idea of globalization puts quite the same emphasis on free markets as, say, Milton Friedman’s, but that isn’t the point. Defenders of international trade are few and far between at the moment. None should be dismissed, especially if they’re in charge of China's economy.
Trump’s instincts are mercantilist, too, but even he says he’s for trade, as long as everybody plays by the same rules. The best thing for the U.S., China and the rest of the world economy would be for Trump and Xi to hold each other to the position that trade is good. Instead of talking each other into a trade war, they should be calling on each other to advance cooperation through commerce.
Globalization has been better for China than Xi himself might admit. China’s output per head has grown more than sevenfold since the country joined the World Trade Organization in 2001. That remarkable boom had little to do with keeping the yuan artificially cheap, as Trump alleges, or with the deftness of the Communist Party’s handling of the economy, as Xi might argue. Instead, WTO accession led to reforms that helped make Chinese exporters more competitive: lower tariffs (hence cheaper inputs), lower barriers to foreign investment, and permission for companies to export directly instead of through state-owned intermediaries.
Indeed, if Xi was sincere in Davos about wanting to “promote trade and investment liberalization ... and say no to protectionism,” he’d weigh the legitimate criticisms Trump and others have levied against China.
He’d cut the flow of cheap credit that supports inefficient state-owned enterprises and gives them an advantage over foreign rivals. He’d keep lowering barriers to foreign direct investment, which even now are four and a half times higher than in the U.S. He’d cut overcapacity in steel, aluminum and other sectors rather than dumping cheap exports on world markets. He’d push for a market-driven currency, defend intellectual-property rights, and apply laws equally rather than selectively targeting foreign companies.
He’d adopt these measures not to please Trump, but to help China’s economy.
Liberal trade is no less valuable to the U.S. New tariffs on Chinese goods would make most Americans worse off, even if China chose not to retaliate. Designating China a currency manipulator intent on holding the yuan down would be absurd now that the central bank is spending billions to prop it up. Threats to upend the “One China” policy governing relations with Taiwan, or to deny Chinese ships access to artificial islands in the South China Sea, raise the risks of conflict and serve no useful purpose.
The Trump administration should continue to use the WTO to go after dumping and other trade-rule violations. It should press for a bilateral investment treaty that improves access for U.S. investors. It should scrutinize Chinese takeover bids in the U.S., again in accordance with the rules. It should revive the Trans-Pacific Partnership -- and urge China to join on the same terms as the other partners. Remember: Trade is good, Trump says, if everybody plays by the rules.
A liberal trading order based on high standards, fairly and firmly applied, serves both countries’ interests. That’s what “fair trade” ought to mean, and it’s what Xi and Trump both say they want. Good. They should help each other get on with it.
--Editors: Nisid Hajari, Clive Crook
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com .