An Urban's Rural View

Should We Do Unto China as China Does Unto Us?

Urban C Lehner
By  Urban C Lehner , Editor Emeritus
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If you've lost track of who is doing what to whom between the U.S. and China, welcome to the club. It all blurs, doesn't it? This trade war has more moving parts than a nuclear-powered aircraft carrier -- or the innards of a $600,000 combine.

The scheduled date for the next volleys of tariff artillery is July 6, though the two countries may talk before they impose tit-for-tat tariffs on another $68 billion in goods -- $34 billion per side. Beyond that, each side threatens further retaliatory tariffs and there have been leaks and counter-leaks in Washington about new investment restrictions.

Even if you're plotting out all the moves and countermoves on a wall-sized flow chart, you can't know for sure which are real and which are negotiating ploys.

Because this war has seen so many skirmishes on so many fronts, the commentary has also been tricky to sort out. A great many pundits think President Donald Trump is going about it all wrong but they have varying views of what he ought to be doing instead. They do seem agreed on one point: Something must be done.

As I wrote a few weeks ago, " Even those in Washington who consider the president slightly unhinged over TPP and NAFTA agree that China threatens the U.S. economy." (https://www.dtnpf.com/…) There is "a lot of momentum in the capital behind hanging tough and taking risks if that's what's needed to make China change course."

But for what ends should those risks be taken? Reduce the trade deficit? Protect American technology from theft and extortion? Change the rules of the international trade system?

The president has emphasized the trade deficit, much to the consternation of economists, who think deficits don't matter. But even some of the pundits who agree with targeting the deficit find the president's tactics counterproductive. He should be looking for allies against China, they argue, not trying to take on Europe, Mexico and Japan at the same time.

As a matter of pure self-interest, farmers would naturally prefer a course of action that does not end up hobbling American ag exports with new tariffs. Concentrating on technology protection is one way to achieve that. The focus would then be on things that don't involve tariffs, like limiting China's ability to buy American technology and eliminating China's requirements that American companies investing in China turn over the technology to Chinese partners.

The president has made a few feints in this direction but his aides were so bitterly divided that he backed away from them. The most coherent plan for tackling the technology theft and extortion problem I've seen was advanced by journalist Michael Schuman on Bloomberg. The key word in Schuman's article is reciprocity (https://www.bloomberg.com/…).

Give China a taste of its own medicine, Schuman urges. American investors in China must partner with Chinese companies, so Chinese investors in America should have to partner with American companies. China bans acquisitions of its technology companies, so we should ban Chinese acquisitions of ours. China requires foreign investors to do research in China, so we should require Chinese investors to do research in America. Make technology reciprocal.

Schuman hopes reciprocity would force China to think again and stop playing games. "The Chinese government would be politely informed that Washington would be more than happy to remove these regulations -- once Beijing lifted its own restrictions," Schuman wrote.

It's a cute idea, this. As you might guess, it's not new. Clyde Prestowitz, a Reagan administration trade official who runs the Economic Strategy Institute, has been advocating variations of it for years (https://hbr.org/…). But Schuman's succinct, pointed argument for it is worth considering.

Schuman cited numerous benefits to reciprocity. It would do much less damage to the economy than tariffs. It would also be less open to criticism, for after all we'd just be doing to the Chinese what they do to us. And it would keep the focus where it belongs, on opening the Chinese market.

As attractive as this might seem, I wonder if reciprocity would really have the desired effect. If, instead of protecting technology, we concede, as Schuman's plan would, that each side is entitled to extort technology from the other on equal terms, we would run into the problem that the U.S. is technologically far more advanced than China. Under reciprocity, then, the Chinese would get more technology from us than we would from them because we start with more. Rather than being forced to lift their restrictions, the Chinese might embrace reciprocity as a sweet deal.

There's also the question of whether our government is equipped to handle all the new procedures reciprocity would entail. There's no question China's is. Bureaucratic flexibility and nimbleness would count for much in a war of reciprocal restrictions. Advantage, China.

And yet, Schuman's first argument is not without force. Reciprocity might not be the ideal solution but, as Schuman said, it would do less damage to the economy than tariffs.

It would certainly do less damage to farmers and ranchers. As hard as it is to keep all the volleys straight, it's clear that some tariffs on U.S. ag products are already in effect and others are coming soon. However easy a tariff war may be to win, the battles are likely to be bloody for American agriculture.

Urban Lehner can be reached at urbanize@gmail.com

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