Wall Street is cheering as trade talks with China progress. A full-on trade war may be averted. Is this reason to celebrate?
While it’s always good to avoid any kind of war, there is still reason to be concerned. Two very different nations with different economies still have to come to some kind of terms over the long haul. More to the point, it’s not about the differences in the economies but different approaches to very basic aspects of being a nation-state, including law.
Leaders sitting down and working out a deal seems like a good thing. But as always, the nature of the deal itself is very important.
A we’ve discussed before, tariffs and trade restrictions are not necessarily the place where any kind of long-term progress can possibly be made across huge gaps in philosophy. This is especially true when two nations are in very different stages of development, particularly with regard to aspects well beyond a concept of an open market.
An open market is not a natural state of things. Where two people could reasonably meet one on one and come to some agreement for exchange in a free market, an open market is much bigger. It is an ongoing relationship between institutions, each with different ideas of “fair” and different expectations in their own land. These expectations include laws but also the investors and owners who have ideas as to what they expect.
This is at the crux of the main issue in trade between the US and China, which is intellectual property. China knows that knock-offs of trademarks, copyrights, and patents are a serious problem. They would very much like to reign this in for their own reasons. But they have shown that they reasonably can’t for a wide variety of reasons.
The problem has persisted for so long that many in the US believe that China does not want to solve the problem. That’s a reasonable conclusion, but the Chinese government knows that the current status is indeed limiting foreign investment and critical innovation. It is also a sign of weakness on their part, a serious problem for a government sustained by an illusion of complete control
Control is something they clearly do not have – at least not to the extent they desire.
Trade deals, as we know them today, are incredibly complex. They tie together seemingly unrelated systems of production into one package and guide the development of the same. Trade deals are thus about much more than the movement of goods outside of the border of a nation, but about the internal workings of the law and economy of each nation that signs them. Concepts like “sovereignty” are mushy at best.
Take, for example, the Trans Pacific Partnership (TPP). This was a negotiated deal that sought to bring Asian nations wary of China deep into a US sphere of influence with a comprehensive relationship. In order to do so, it necessarily negotiated changes in regulation and law from all nations. In the US, it reasonably became a political football for this reason Strategic trade, as defined by TPP, meant giving up a certain level of sovereignty.
The same is true in China, where intellectual property theft is estimated to cost US companies at least $58 billion every year. There is no way to combat this without a crackdown. China has been tightening laws, but still does not mandate jail time for offenses related to copyright infringement. At this point, we are asking them to negotiate changes to their laws and how they are enforced in order to continue selling their goods at your local WalMart.
Is that reasonable? When much smaller changes in law were proposed by the TPP, many in the US became angry at the mere thought that changes would be made based on trade considerations. The same happens in China, made even worse by those who are making a lot of money on knock-offs and have plenty of cash to put up to prevent losing their business.
All of this goes two ways.
Naturally, in an authoritarian system there is much less reason to worry about how the people of the nation feel about new laws negotiated by treaty. But that’s not to say that the process doesn’t build up mistrust or anger wealthy interests. It does cut to the heart of what an authoritarian state is all about, which is control. Any leader which has to bow to a foreign power, making life difficult for its own citizens in some way, is a leader who will have at least whispers circulating about their strength.
This is never a good thing.
Will we have a negotiated comprehensive trade deal which solves this fundamental problem? We might, anything is possible. But as it stands now both sides have a lot to lose with such a deal, and a lot more to gain by holding each other up as a bogeyman to blame for any number of things. For those at the table, it’s more likely that they have a strong interest in not getting anything useful done.
If there is an agreement, however, it will necessarily be complicated and arcane. It will reach deep inside the structure and operation of both nations in ways that everyone will want to keep hidden with dense language. Some will read this and see a conspiracy to sell out their nation, and not without reason.
But this is the nature of trying to even up the world between developing and developed nations with nothing more than trade deals. It’s simply a lousy way to go about doing anything.