Trump's confusing China policy: Tempting a trade war with tariffs while begging for ZTE bailout

Trump has potential conflicts of interest that could explain his uncharacteristic stance toward one Chinese giant

By Matthew Rozsa

Staff Writer

Published June 20, 2018 10:15AM (EDT)

Donald Trump; Xi Jinping (AP/Getty/Salon)
Donald Trump; Xi Jinping (AP/Getty/Salon)

President Donald Trump is pushing for Congress to go easy on a Chinese telecommunications company that may pose a national security threat to the United States.

Trump's plan to pressure Republican congressmen on Wednesday came after a defense bill was passed in the Senate on Monday that restored economic sanctions on ZTE Corp., according to Bloomberg. The measure, which was passed by a margin of 85 votes to 10 votes, caused a 27 percent decline in ZTE's stock on the Hong Kong exchange. It was supported by a bipartisan coalition, with many Republicans sharing the view of their Democratic colleagues that ZTE poses a national security threat to the United States and that Trump was in error for opposing sanctions against it.

The Senate's defense bill will ultimately need to be reconciled with a similar measure passed by the House of Representatives in May, albeit one that did not contain the same sanctions restoration provisions. This will provide Trump with an opportunity to exert pressure on legislators to remove or weaken the sanctions in the bill that is ultimately passed by both houses of Congress.

Trump's determination to protect ZTE is seemingly at odds with his otherwise tough stance on trade matters, particularly involving China. As Reuters reported on Monday:

Trump threatened on Monday to hit $200 billion of Chinese imports with 10 percent tariffs if Beijing retaliated against his previous targeting of $50 billion in imports, aimed at pressuring China to stop stealing U.S. intellectual property.

He also threatened tariffs on another $200 billion of Chinese products should Beijing hit back again, bringing to $450 billion the potential amount of Chinese exports that could be targeted. That sum approaches the roughly $500 billion in total annual Chinese exports to the United States.

ZTE itself has been accused of violating sanctions against Iran and North Korea, as well as using its technology to spy on Americans on behalf of the Chinese government. While this may make it even more mystifying for the Trump administration to support ZTE's corporate interests, it becomes considerably less so when you consider that a Chinese corporation with strong ties to that nation's government agreed to invest $500 million in a major Trump-branded project in Indonesia. This has led some critics to question whether Trump is trying to help out ZTE in order to advance the business interests of the Trump Organization, from which he has not divested himself and which has pursued foreign projects since he took office, despite promising not to do so.

Making matters worse, the tariffs that Trump has been threatening against China have not even been the most effective method of stopping that nation from engaging in unfair trade practices against the United States.

"China’s technology theft and other unfair trade practices are a major challenge to America’s economic future," Ed Gerwin, a senior fellow for trade and global opportunity at the Progressive Policy Institute, told Salon by email. "But an unfocused strategy that imposes tariffs on Chinese-origin goods—and doubles down on those tariffs—won’t get China to change its bad practices. As we’ve already seen, China will just retaliate with its own damaging tariffs on U.S. trade. As we detail in our report, America needs to work with allies to enforce and improve global trade rules and smartly ratchet up focused pressure on China. At the same time, we need to stand up for open global markets, which strongly benefit American producers and workers."

The Progressive Policy Institute also released a report, "Confronting China’s Threat to Open Trade: A Smarter Strategy for Securing America’s Innovation Edge," which detailed the problems with Trump's approach to dealing with China and discussed more effective alternatives.

The President’s blunt goal of reducing America’s trade deficit with China by $200 billion won’t address the threat of China’s high-tech mercantilism. China recently sought to provide Trump with a short-term deficit “win” by making broad promises to buy more low-tech farm and energy commodities. But this won’t stop Embargoed China from continuing and even expanding efforts to “assimilate” America’s high-tech know-how. Similarly, Trump’s laser-like focus on trade in “old economy” products like steel and aluminum is a distraction from the vital goal of addressing China’s challenges to America’s economic future.

The Administration’s tactics are similarly flawed. Threatening duties on $150 billion in Chinese products is unlikely to upend China’s innovation mercantilism. Duties would increase American consumer prices and reduce vital technology investments, while a tit-for-tat tariff war with China could cost an estimated 455,000 American jobs, most in less-skilled sectors. The Administration’s “go-it-alone” approach to trade is also alienating allies in Europe, Japan, Korea, and elsewhere who should be natural allies in opposing China’s technology mercantilism. Finally, there’s significant concern that President Trump may undercut the long- term effort required to address Chinese mercantilism by, instead, focusing on short-term “wins.”

The report urged President Trump and Congress to confront China by working more closely with trade partners who are also dealing with their economic aggression, using the World Trade Organization to challenge China's rule violations, update global trade rules to address China's unfair innovation practices, strengthen America's position in negotiation for the elimination of China's various abusive innovation policies and establish "an escalating series of sanctions that would kick in if China fails to make verifiable progress in eliminating abusive innovation practices."

There is also the possibility that starting an outright trade war with China will play directly into that nation's hands, given how General Secretary Xi Jinping is an authoritarian with much more direct control over his nation's economy than Trump has over that of the United States.

As Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, told NBC News:

The first thing to observe here is that China is not a country of laws, it's an authoritarian dictatorship. So from that opening point, China is potentially able to play much, much dirtier than the United States.

He will essentially force the Chinese government to retaliate in other ways — and those other ways can be much more costly to American firms,” he said. “That belief is premised on a fundamentally erroneous assumption about how the modern economy works . . . and a lack of concern with how engaged American businesses are involved already in China."

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By Matthew Rozsa

Matthew Rozsa is a staff writer at Salon. He received a Master's Degree in History from Rutgers-Newark in 2012 and was awarded a science journalism fellowship from the Metcalf Institute in 2022.

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