Vol. 52, No. 5

In this edition

In this special pre-election edition, the Forum examines some of the accomplishments in Congress over the past two years, and some of the issues people may be thinking about when they vote. 


After years of slow growth and a lack of confidence, Americans asked for a better way. From cutting taxing to strengthing our national defense, the 115th Congress has shown that we found it.

How We Rebuilt America’s Military

The bipartisan budget agreement passed earlier this year has enabled us to deliver what we’ve long promised: making sure our troops have the training and equipment they need.

The State of the Small Business Economy

In August, the NFIB Optimism Index soared to a record high of 108.8, breaking the 1983 record of 108 that occurred during the Administration of President Reagan.

America is Building Things Again

The U.S. has gained back 15,000 manufacturing establishments and more than a million manufacturing jobs, with 278,000 of those jobs coming in the past year alone.

A View from Dubuque, Iowa

“The current picture of Iowa and Dubuque is that it is not yet firmly Trump Country,” reports the Professor from Loras College and the Director of the Loras College Poll.

A View from Northampton County

“Nothstein’s allegiance to Trump appears to be more of a burden than a boost as the mid-terms draw near,” writes the Muhlenberg College Professor about the local GOP candidate for Congress.

A View from Trumbull County, Ohio

“Trump’s single greatest achievement is his tearing up of NAFTA,” writes the Professor from Youngstown State University.

A View from Macomb County

“Macomb residents are sticking with President Trump,” write the professors from Oakland University in Michigan.

A View from Kenosha County

“Kenosha County reflects both traditional Democratic Party roots and recent Republican strength,” writes the Professor & Director of the Clausen Center for World Business at Carthage College.

Leveling the Playing Field with China

China’s wealth has grown significantly in recent decades, yet some of its trade practices remain rooted in its past as a fairly poor country.

Ripon Profile of Joni Ernst

The Senator from Iowa discusses some of the accomplishments of her first four years in office, and some of the challenges she plans to continue working on next year.

Leveling the Playing Field with China

In recent months, the Trump administration has intensified its trade war with China. Some have suggested there is an impending “economic cold war” between the United States and China, with an effort to “decouple” the world’s two biggest economies.  While this kind of talk can become a self-fulfilling prophecy, such an outcome is not a foregone conclusion at this point. With a change in approach, it is still possible to find a peaceful solution.

The administration is right to criticize China for its relatively closed markets. China’s wealth has grown significantly in recent decades, yet some of its trade practices remain rooted in its past as a fairly poor country. At this point, it is fair to ask China to take on trade commitments commensurate with its rising income level.

The problem lies with the administration’s strategy. It has imposed tariffs on almost half of Chinese imports, which has led China to impose retaliatory tariffs on nearly all U.S. imports.  There is no sign of either side backing down. If the administration’s goal is to open up China’s market, its strategy is not working, and it is time to consider alternatives.

China’s wealth has grown significantly in recent decades, yet some of its trade practices remain rooted in its past as a fairly poor country.

China is already doing some liberalizing on its own. For instance, China is slowly opening up more sectors for foreign investment and lowering its tariffs.[1] Chinese officials have promised to continue with more of this type of liberalization.

But China needs to extend its efforts beyond these narrow issues and make broader structural improvements to its economy. China should reform its state-owned enterprises, rein in its subsidies, pare back its various restrictive domestic regulations, and also improve its intellectual property protection, including efforts to address the cyber-espionage that has been well-documented in the Office of the U.S. Trade Representative’s Section 301 Report.

The Trump Administration should encourage China’s efforts in these areas, but unilateral tariffs will not help. They come across as “bullying” to China, to which China reacts badly.[2] Just as importantly, tariffs will undermine economic well-being in both economies.

One good alternative for the Trump administration is to work with other nations and file a wide range of WTO complaints against China. China’s compliance record in WTO disputes is better than many people realize, and there are a number of issues for which complaints have a good chance of success. Intellectual property protection and subsidies are two promising areas in this regard.

For other issues, clearer and more explicit obligations are needed — either within the existing WTO framework or though bilateral/multilateral negotiations. The TPP was one avenue to pursue this, but bilateral or multilateral efforts could also work.

China should reform its state-owned enterprises, rein its subsidies, pare back its various restrictive domestic regulations, and also improve its intellectual property protection.

In contrast to those approaches, the Trump administration’s latest idea is to look for ways to pressure certain allies into taking collective action against China’s practices. The most recent initiative of this kind is a provision in the new US-Mexico-Canada Agreement (USMCA) that creates hurdles for Canada and Mexico if they want to negotiate a trade deal with China. Article 32.10 of this agreement requires a Party to inform other Parties of the intention to negotiate a trade agreement with a non-market economy and provide the full text of the agreement for review. If such an agreement is negotiated, other Parties may terminate the USMCA and negotiate a new bilateral agreement to replace it. The USMCA provision does not mention China by name, but it clearly targets China.

While some may worry that this provision completely eliminates the possibility of an FTA with China, it could actually offer an opportunity. The Trump Administration seems reluctant to engage in a real negotiation with China, through which each side gives something and gets something. But rather than give in to the U.S. pressure here, Canada may be better served by demonstrating to the Trump Administration how to negotiate with China in order to address some of the trade practices in question. Australia and New Zealand have already concluded trade deals with China. If Canada could do so as well, some people in the U.S. government might take notice. The conditions set out in Article 32.10 could make the negotiating process a little bumpy, but they do not prohibit a Canada-China deal.

If the Trump Administration really wants to convince China to move in a more market-oriented direction, it needs to understand that unilateral tariffs and bullying will not work. China may be a difficult negotiator, but it has made concessions in trade agreements before, and it would be willing to do so again. [3] Overall, China has more respect for the international rule of law than people realize, at least in the area of economic relations. It is also looking to play a bigger role in the global economy. Instead of fanning the flames of a trade war, let’s use this opportunity to move China in a more market-oriented direction.

Simon Lester is the Associate Director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute.  Huan Zhu is a Research Associate at the Stiefel Center.


[1] http://gss.mof.gov.cn/zhengwuxinxi/gongzuodongtai/201809/t20180930_3033435.html

[2] https://www.bloomberg.com/news/articles/2018-10-09/china-commerce-minister-discusses-u-s-trade-dispute-full-text

[3] https://www.ft.com/content/6f1bd226-cb67-11e8-b276-b9069bde0956