At the heart of President Trump’s trade dispute with China lies the vast trade imbalance between these two economic superpowers. Simply put, we buy a lot more goods from China than they buy from us. In 2018, America’s trade deficit with China reached a record high of $419.2 billion. America’s second-largest trade deficit is with Mexico, at just $81.5 billion.
This initial dispute over trade quickly morphed into more complex issues, including China’s unfair trade practices. China heavily subsidizes its steel and aluminum industries. This allows Chinese manufacturers to flood the global marketplace with cheap steel and aluminum at prices U.S. manufacturers can’t compete with. But the greater challenge within this year-plus long dispute is Trump’s demand for unconditional access to the Chinese marketplace.
Besides having the world’s second-largest economy, China is also the world’s most populous country. With a population of 1.43 billion — more than four times greater than America’s — it equates to a massive consumer pool for American goods and services. But access to China’s consumers remains a sizable challenge.
For decades, American companies have complained that to operate in China, they are required to turn over their intellectual property — such as patents and technology — to China. Through its practice of forced technology transfer, China’s state-owned corporations then use these assets to compete against those very same U.S. companies. In other cases, American intellectual property is obtained by outright theft. Combined, China’s theft, espionage and forced technology transfers are estimated to cost U.S. corporations between $225 to $600 billion annually, according to the Center for Strategic and International Studies, a Washington, D.C. non-profit think-tank.
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Trump’s goal of unconditional access to China’s marketplace remains elusive. On May 3, China scuttled negotiations when it balked at having its verbal guarantees on unfair trade practices and its theft of American corporate assets from being placed in the written text of a new agreement. China continues to provide assurances these practices will end. But Trump is demanding specifics and that any guarantees be placed in writing that would hold China accountable.
The next round of high-level negotiations is set for October 10-11 in Washington, D.C. Recent tensions have subsided and both nations have scaled back or delayed previously imposed tariffs. In a further act of goodwill, last week, China confirmed a substantial purchase of U.S. agricultural goods including soybeans, beef and pork.
The crux of Trump’s demands will likely remain on China’s markets. But he also realizes that America’s corporate innovation in intellectual property, patents and technology drives the creation of goods and services that fuels our economic growth. Yes, he wants China to access America’s corporate assets, not by theft or forced technology transfers, but rather as consumers.