By Clay Chandler and Eamon Barrett
January 19, 2019

Bloomberg reported Friday that Chinese trade negotiators have put forth a proposal to Trump administration counterparts that would eliminate China’s trade surplus with the United States by 2024.

The report, if accurate, suggests an astonishing breakthrough in trade talks between the two countries. In 2018, China’s trade surplus with the U.S. topped $323 billion, a 17% jump from the previous year. Global markets rallied in response to the prospect that the world’s two largest economies were closing in on a trade truce.

I’ve argued previously in this space that reducing China’s trade surplus with the U.S. to zero is mathematically improbable, if not impossible—at least in the short term. That’s so even if China were to dramatically ramp up purchases of big-ticket U.S. imports such as Boeing jets, soy beans, and natural gas.

The math is less daunting over a six-year horizon. But the Bloomberg report says Trump insists he’ll refrain from slapping even higher tariffs on U.S. imports from China only if Beijing promises to eliminate the trade surplus within two years.

Trump’s fixation on the bilateral trade balance between the U.S. and China is silly for many reasons, which I won’t belabor here—except to note that it contradicts his other, more worthy trade goals. Trump has argued Beijing should stop meddling in China’s economy, abandon Xi Jinping’s “Made in China 2025” industrial policy for China’s tech sector, stop channeling cheap capital to unproductive state-owned enterprises, and give way to free markets and private firms. But his demands that China eliminate its bilateral trade surplus with the U.S. within two years will require forceful intervention in China’s economy by central government planners—strengthening the role of the state in China’s economy rather than allowing it to wither away.

Meanwhile, there’s been very little new information about what China would do to curb theft of U.S. technologies and eliminate requirements for U.S. companies to surrender proprietary technologies as the price of entry into the Chinese market.

Derek Scissors and Daniel Blumenthal, analysts at the conservative American Enterprise Institute, recently offered this proposal outlining what a rules-based U.S. trade policy focused on intellectual property protection rather than an outcomes-based policy focused on the bilateral U.S-China trade balance might look like. They argue that “comprehensive tariffs, which harm American consumers and workers unnecessarily, are not the right reaction.” U.S. government intervention in trade policy, they contend, “should be limited to areas that are genuinely vital to national security, prosperity and democratic values.”

More China news below.

Clay Chandler
@claychandler
clay.chandler@timeinc.com

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