Thursday night, President Trump tripled down on his unilateral threat to impose tariffs on Chinese imports – upping the level from $50 billion to $150 billion and putting American businesses, consumers and the U.S. economy in the crosshairs of an escalating trade confrontation between the world's two largest economies.
The president has raised the stakes on an already dangerous gambit, making careful planning for an off-ramp all the more important.
It's time to take a step back before the administration moves forward.
President Trump is right when he says China's unfair and discriminatory trade practices must end. For years, the Chinese government has engaged in heavy-handed economic behavior and unfair trade practices that harm the U.S. economy.
When investing and operating in China, many American businesses have been hurt by intellectual property theft, forced technology transfers, and discriminatory treatment in government procurement. China has also erected barriers against U.S. manufacturing, services, technology, agricultural, and digital industries.
While some progress has been made in certain sectors, as well as improvements in currency and environmental policies, business leaders agree with President Trump that the existing dialogue between China and the United States has yielded insufficient tangible results.
The president's threatened tariffs are a poor way to address these systemic problems. His actions are eroding market and business confidence and risk reversing the successes of his tax and regulatory policies. However, if the current tit-for-tat does result in China and the United States coming to the negotiating table constructively – and this remains far from certain – the goal must be to secure lasting economic reforms in China that make it easier for America's businesses to compete, win, and create jobs.
Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer are correctly focused on long term economic reforms that the Chinese government must institute. The White House's chief economic advisor, Larry Kudlow, puts it simply: "[T]he path to free trade must include tremendous reforms … stopping the illegal and unfair trading practices" of the Chinese government. Negotiations that do not achieve such reforms would make this a wasted effort.
Constructive negotiations with China shouldn't focus on punishing the Chinese or on superficially reducing the trade deficit. The pain caused by punitive measures will likely be inflicted most heavily on the United States – not China – and the U.S. trade deficit with China and other countries is largely driven by U.S. savings and investment decisions, not by unfair foreign trade practices.
The administration should not settle for concessions that temporarily reduce America's trade deficit with China but fail to address larger problems facing U.S. businesses and workers.
The administration should do much more work in coordination with America's international partners, as it is starting to do in the World Trade Organization, where Japan and Europe have asked to join the United States in challenging China's discriminatory treatment of foreign intellectual property. Establishing a united front with our allies would increase pressure on China to change its unfair practices, and allow fair access to and participation in its market as well as reduce the risk that China will punish U.S. companies while embracing their foreign competitors.
The administration should set specific deadlines for clearly identified, tangible reform. It should outline actions that the United States will take in coordination with our international partners if China fails to address our concerns.
Once at the table, if both countries are willing to negotiate constructively, the president's proposed tariffs should be postponed so that talks have an opportunity to produce results. Any new investment restrictions on China should likewise be deferred to maximize the opportunity for negotiations to achieve positive change in China.
America's businesses are eager for a level playing field that helps U.S. companies compete and provides a fair system and economic prosperity for both countries. But lasting economic reform in China will not happen overnight – and it will not happen without strong, sustained, coordinated leadership between the United States and like-minded countries.
Our nation's business leaders are eager to help the president get this right for the American economy and U.S. businesses and workers.
Joshua Bolten is President & CEO of the Business Roundtable, an association of chief executive officers of leading U.S. companies.