Free Trader, Longtime USTR Staffer Are Sadder and Wiser on China

Dan Ikenson, who spent decades in trade policy at the libertarian Cato Institute, said he defended China's behavior for years after it joined the World Trade Organization. "I was in favor of welcoming China into the trading system," he said. But now, Ikenson said during a June 9 webinar hosted by the R Street Institute, he has come to see that China's last 15 years of state-directed capitalism produced enormous externalities. He said some of those externalities include the rise of populism, the political rejection of free trade, and even, in part, the presidency of Donald Trump.

Too many smart people in the trade community were too dismissive of the implications of China's ambitions to be superior technologically, which they have advanced by extorting technology from U.S. businesses as a price of doing business in the Chinese market, he said, and they engaged in "technology theft on a grand scale."

Now, he said, he thinks we should try to hinder those ambitions by restricting investments and imposing export controls, even though export controls are imperfect. "For them to work well, they need to be multilateralized," he said.

Ikenson said the phase one China deal is counterproductive, as he believes its purchase promises drive a wedge between the U.S. and Europe and the U.S. and Japan, and he said they are inconsistent with our complaints that China's government is too intertwined with its businesses.

Wendy Cutler, a chief negotiator of the Trans-Pacific Partnership and now vice president of the Asia Society Policy Institute, disagreed. "Was it successful in really getting to the heart of the practices that were laid out in the Section 301 petition? No, but it made some headway." She said the U.S. was unrealistic about how much China would agree to change. "That is the challenge of negotiating with any country, really," she said.

But, at the same time, she said, "Maybe the days are over in terms of reaching incremental deals with China, given the gravity, the seriousness of the problems and the trajectory China is on." She said she's also critical of the European Union's Comprehensive Agreement on Investment with China, because it, too, makes only incremental progress toward leveling the playing field between China and market economies.

Europe is not looking to ratify the CAI after China sanctioned some EU members of parliament over the EU's sanctions on some Chinese officials because of abuses in Xinjiang (see 2106010020).

"The CAI announced late last year likely would have reinforced the wedge" between the EU and the U.S., Ikenson said. "Beijing seems to have squandered that opportunity."

R Street moderator Clark Packard asked if there is any path to rolling back Section 301 tariffs on Chinese goods.

Cutler said that when the business community asks the Biden administration to lift all the tariffs, she says, "I’m a practical person, I look at the politics, I don’t see that happening."

But, she said, maybe the U.S. could reduce the 25% rate to 20% on some items, or, if China fulfills some targeted requests from the U.S., the U.S. removes tariffs on some products.

Ikenson said some say that tariffs could be lifted on non-technology products, but he asked: How can countries have an adversarial relationship in technology, while pretending everything is fine everywhere else?