Donald Trump.

President Donald Trump said tariffs on Mexican goods will "likely" go into effect during a news conference in the United Kingdom. | Tasos Katopodis-Pool via Getty Images

Global Translations

Trump’s method to the madness on trade

Lost in the tweets and partisan fights is a belief that a bet on freer trade has proved to be a loser.

Donald Trump is not winging it.

Or at least he’s not totally winging it.

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However improvisational his daily machinations on trade — presenting publicly as motivated by a random mix of mood and twitches of the news cycle, including the latest threat of tariffs against Mexico — Trump and his team are acting on a well-developed theory of the case, one that has been decades in the making.

In Trump’s case, that strategy is intuitive. He’s been saying since the 1980s — and by all evidence genuinely believes — that the United States is letting itself be played for the fool by foreign adversaries, on trade specifically and global competition generally. Strong nations robustly protect domestic industries and keep foreign competitors at heel. Back in the ’80s his focus was more typically Japan; in recent years, but long before 2016, he’s been focused on China.

In the case of his advisers, the theory of the case is more intellectual. They believe that the big bet free trade advocates made in the 1990s — that welcoming China into the WTO would encourage it to integrate into a rules-based global economy — has proved to be a loser. China, by these lights, is happy to take advantage of the U.S. and other players’ commitment to free trade and rules but will continue to steal and subsidize to advance its own interests.

This method to the apparent madness has emerged in interviews for the new Global Translations podcast — which launched Thursday — with people who have worked for Presidents Richard Nixon, George H.W. Bush, Bill Clinton, George W. Bush, Barack Obama, and Donald Trump. And it helps explain why the Trump administration has made such a break from the strategy of previous administrations.

“I and many others had deceived ourselves that China wanted to be just like us,” said Michael Pillsbury, an influential adviser to the Trump administration on China and author of the book, “The Hundred Year Marathon: China’s Secret Strategy to Replace America as the Global Superpower.”

“I finally woke up,” he said. “But I would not say everybody's awakened even at this point.

The Trump doctrine marks a repudiation of decades of U.S. trade orthodoxy — that reached its high point in the 1990s, after the Soviet Union collapsed, and capitalism and liberalism appeared on the march. This “End of History” euphoria culminated in Clinton pushing past his party’s populist instincts on trade and embracing the elite view that the world was becoming more integrated, more rules-based, and more prosperous, and that this meant good things both for American and the rest of humanity.

In 1993, he signed into law NAFTA, which had been negotiated by the Bush administration, and enabled China’s accession into the WTO, stating in a 2000 speech: “By joining the WTO, China is not simply agreeing to import more of our products. It is agreeing to import one of democracy's most cherished values, economic freedom. The more China liberalizes its economy, the more fully it will liberate the potential of its people -- their initiative, their imagination, their remarkable spirit of enterprise. And when individuals have the power, not just to dream, but to realize their dreams, they will demand a greater say.”
That democratic dream now appears dead — and with it American patience to wait for China to reform itself.

The China hawks in the White House believe now is the best — and perhaps last — moment for the U.S. to take dramatic economic action against China, even at the cost of roiling markets and upending a strong U.S. economy.

And they have tethered the rest of U.S. trade policy — demands of Canada, Mexico, Europe and Japan — to an aggressive agenda of increasingly squeezing China out of global supply chains while pressing for structural change in Beijing. When U.S. business leaders have warned, cajoled, and pleaded about the economic risks of a trade war, they have been rebuffed with the argument that it is precisely the strong economy that has wedged open a historic window of opportunity to make the move.

U.S. Trade Representative Robert Lighthizer, who has described China as an “existential problem,” wants to use U.S. economic leverage to demand serious structural changes in China — while the U.S. still has that leverage.

The urgency behind the strategy concerns technology: China’s attempts to supercharge the growth of nascent tech industries by subsidizing them and forcing the handover of U.S. intellectual property. The goal is to leapfrog from its past status as a developing nation exporting cheap plastic wares to a leader in strategic emerging technologies that will define the next technological age — such as 5G and the next-generation internet, artificial intelligence and renewable energy.

China has copied U.S. technology, sometimes by requiring joint ventures and the sharing of intellectual property and other times by outright theft. The end of these forced technological transfers is Lighthizer’s central aim — even if they mean that soybean farmers will pay the price. If America fails to do so and becomes “number two in technology,” he told a congressional hearing in February, “then the world is going to look very different for our children.”

Pillsbury, the Trump adviser, said the administration fears not only losing a commercial rivalry — but enabling an Orwellian future in which an authoritarian Beijing controls global surveillance, directs online speech and embeds government control into the very plumbing of the internet.

“Their idea is the whole world will have this combination of [surveillance] cameras, your shopping patterns, what magazines you subscribe to, who your friends are, where you go based on your cell phone being geolocated,” with the aim of creating a social credit score, he said. “To what degree do you support the Communist Party of China? Have you ever criticized anything? And then when you apply to get a loan or to go to college or to do anything, your social credit score will tell how the government’s going to treat you.”

“Everybody in the world will be under this kind of system,” Pillsbury said of the authoritarian vision of the future.

Increasingly, the U.S. military is concerned, too. The 2018 national security strategy, signed by former Secretary of Defense James N. Mattis, asserts that China seeks “regional hegemony in the near-term and displacement of the United States to achieve global preeminence in the future.”

This big picture explains in part why the Trump administration has been willing to wrest open trade relations with allies in order to remake the terms of global trade — it’s not just about a better bilateral deal for the U.S., but about a particular approach to China. Take the steel tariffs against Canada and Mexico that were aimed at “closing the back door” to subsidized steel from China, among other places; and the insertion of language in the new North American agreement that would expel a country from the agreement if it entered into a free trade agreement with a “non-market economy,” or new requirements aimed at reducing the share of Chinese parts in North America car production. Likewise, the administration will have China in mind as it opens talks with Japan and Europe.

In Trumpland, the long-term goals apparently outweigh the short-term chaos and pain.

Dan Ujczo, an Ohio-based trade lawyer with Dickinson Wright, recalled a meeting with senior Trump administration officials and groups representing industries affected by tariffs, who argued that the economic effects of Trump’s economic policies would be undone by a trade war. “It was really one of the most brilliant presentations I’ve ever seen — PowerPoint graphics, the whole thing — that said, ‘If you do this, administration, if you do what you're talking about doing on trade,” he recalled, “you’re going to take back all the economic gains you’ve made from tax reform.”

“And everybody thought it was a mic drop moment, right? Aha! And everybody in the administration kind of looked at each other and said, ‘We know. You think we don't know that?’”

Over two decades, 9/11, the wars in the Middle East and the financial crisis and recovery, made action too difficult, according to Ujczo — and the possibility of a next recession could close the window. “If we don’t do this now, when will we ever do this? It’s really, I think, in the eyes of this administration, a now-or-never moment — and they may be right.”

While Democrats don’t agree with all of Trump’s tactics, long-standing concerns about China have been bipartisan. House Speaker Nancy Pelosi was an early opponent of China’s entry into the WTO. Senate minority leader Chuck Schumer has long decried Chinese currency manipulation. Schumer recently tweeted, “Hang tough on China, President @realDonaldTrump. Don’t back down. Strength is the only way to win with China.”

The Obama administration shared concerns about Chinese subsidies and technological theft but attempted to address them by negotiating the Trans-Pacific Partnership — a new agreement with 11 other nations. The idea was to encircle China by creating a free-trade zone with its neighbors and set high standards that China would eventually have to accept in order to join. In trying to sell the deal to a skeptical public in 2015, Obama said China had been “putting out feelers” about eventually joining the pact.

But the agreement lacked public and Congressional support amid a backlash against globalization. Trump withdrew the U.S. from the agreement after he was elected and has opted instead for an increasingly bilateral approach to confronting China — using threats, tariffs and negotiations with other nations as a way to influence China. In many ways, it was the administration’s firmest rebuke of the international coalition-building approach of Republican and Democratic administrations that preceded it.

While critics of the TPP said it wasn’t enough to force structural changes in China, supporters say Trump gave up a powerful tool.

“I think [it] is perhaps the most significant strategic blunder in recent American history,” said Michael Froman, the U.S. Trade Representative under Obama. “We’ve lost that position for the United States at least for now, and we have created a void, a vacuum that China is quite effectively filling at the moment.”

Trump’s agenda doesn’t necessarily mean an end to trade. But it does mean surrendering faith in gauzy principles and far-reaching trade protocols. Instead, go toe-to-toe with trade competitors at times and in sectors of one’s own choosing — and know that adversaries won’t respect you unless you prove on occasion that you are willing to inflict pain on others (and accept it yourself) to win a conflict.

And it leaves open the possibility that the confrontation with China could embolden hawks on both sides.

“Over the next year or two we're going to find out — can we have a trade deal? Can we have some kind of reconciliation with China?” said Pillsbury. “Or… are we moving toward a new Cold War relationship?”

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