- Current political and economic issues succinctly explained.
Edward Alden is the Ross distinguished visiting professor at Western Washington University, and a senior fellow at the Council on Foreign Relations.
Robert Lighthizer has spent his entire career preparing for the next two weeks of negotiations with China. The Trump administration’s 71-year-old U.S. trade representative was one of the earliest and most forceful opponents of China’s admission to the World Trade Organization. He derided as “wishful thinking” the idea then popular in both the Republican and Democratic parties that greater trade would lead to a more open, market-oriented and responsible China. Having lost that battle when the Clinton administration supported China’s WTO entry, he complained as trade between the United States and China grew more and more imbalanced, resulting in trade deficits he termed “catastrophic and unsustainable.”
Now, he finds himself in a position to do something about it. Lighthizer is leading the U.S. delegation to Beijing this week for what will be the most critical meeting yet in the high-stakes trade conflict between the United States and China. He is tasked with persuading or bullying Chinese leaders into what are euphemistically called “structural reforms,” policy changes that somehow force China off its path of using state power to capture new industries and supplant U.S. leadership in the critical technologies of the future.
He is doing so against a March 1 deadline in which the United States has threatened to hit China with far more costly penalties on $200 billion in imports, raising tariffs from 10 percent to 25 percent. And he is doing so working for a weakened President Donald Trump, who appears badly to want a “big deal” that will gratify Wall Street investors and reinforce his personal friendship with Chinese President Xi Jinping. Rarely has a U.S. Cabinet-level official been asked to deliver so much in so little time against such long odds.
If he somehow succeeds, he could put the world’s two superpower economies on a path toward accommodation. If he fails, the U.S. faces either a drawn-out trade conflict with China, or an admission of defeat that there is little it can do to change Beijing’s economic strategy.
Lighthizer has been working toward this moment for decades. A lawyer and veteran of Washington trade circles going back to the 1970s—the National Journal once called him “the insider’s insider”—Lighthizer has nonetheless long been a Cassandra on China even as U.S. business and political elites were embracing the Asian nation as a once-in-a-century opportunity. President Bill Clinton captured that frothy optimism when he said that China’s entry into the WTO was “a hundred-to-nothing deal for America when it comes to the economic consequences.”
While Lighthizer did not oppose cautious expansion of trade with China, he was bitingly critical of the faith that growing trade would somehow produce a China that played by the same rules as the U.S. In a 1997 New York Times op-ed, he wrote that if China joined the WTO “virtually no manufacturing job in this country will be safe.” He warned that “China wants to join the WTO to achieve a dominant position in world trade.”
Some of that skepticism came from his experience negotiating with Japan in the 1980s, a democratic ally of the United States that had also embraced state planning and national champions to become an export powerhouse. As deputy U.S. trade representative in the first term of the Reagan administration, Lighthizer’s task was to try to blunt an onslaught of Japanese exports of cars, steel, machine tools and other industrial goods. He negotiated a series of “voluntary export restraints” in which Japan agreed to curb its sales to ease the pressure on U.S industries. But over two decades of trade battles with Japan, the United States at best forced small changes in Japan’s trading practices; Japan today remains among the most closed of the advanced economies, and still runs a large trade surplus with the U.S.
Lighthizer’s views on the impact of China’s WTO accession—which seemed curmudgeonly two decades ago—are now mainstream among economists and China experts in both parties. Imports from China are now accepted to have been a big cause of the elimination of nearly 6 million American manufacturing jobs in the 2000s. And China scholars believe that country has taken a sharp turn in recent years away from liberalizing economic reforms and toward a far bigger role for the state and the Communist Party.
But trade rules today are different than they were before the creation of the WTO in 1995—one of the big reasons China so badly wanted to join the club. In the pre-WTO days, nothing prevented the United States from closing its markets to Japanese products as a negotiating tactic. President Clinton at one point threatened to block $6 billion in Japanese luxury auto imports unless Japan opened its market to U.S. cars. Since the creation of the WTO, however, countries have agreed to resolve their trade disputes through the formal mechanisms of the WTO, not by direct tariff retaliation. (Advocates of this approach say the United States, which generally adheres to WTO rules, does better in a world where other countries can be forced to do the same by a neutral arbiter; critics charge that the United States abandoned its best weapon—the threat to block other countries from exporting to the largest consumer market in the world—when it signed on to formal dispute settlement.)
With Trump’s vocal support, Lighthizer tore up the WTO’s rules by launching the action that has so far resulted in U.S. tariffs on $250 billion worth of Chinese imports—and retaliatory Chinese tariffs against about half that amount in U.S. exports. He has argued that China’s huge, secretive, state-directed economy cannot be properly constrained by rules that were written for more open, transparent, market-driven economies. Instead, he believes that only by threatening China with a painful loss of access to the U.S. market will the Communist Party leadership consider changing direction. “Indeed,” he testified in 2010, “derogation [from WTO rules] may be the only way to force change in the system, to prompt China to truly live up to the letter and spirit of its WTO obligations, and to put in place a sustainable and mutually beneficial relationship.”
Trump promised tough trade action against China during the 2016 campaign, but he initially left Lighthizer on the sidelines in the negotiations. The USTR was asked instead by the president to lead the renegotiation of “the worst trade deal ever made’’—aka the North American Free Trade Agreement with Mexico and Canada—and the talks proved difficult and contentious. Trump gave Lighthizer plenty of room to do the deal he wanted, however, rarely interfering in the negotiating details and occasionally playing bad cop by warning that he was prepared to tear up NAFTA if an agreement could not be reached. When the deal was concluded last September, Trump gave a rare personal shout-out in the Rose Garden to Lighthizer, turning to shake his hand and adding: “I’ve heard it for years. I said if I ever do this I want to get Lighthizer to represent us, because he felt the way I did.”
He has now entrusted the China talks to Lighthizer. Commerce Secretary Wilbur Ross, who tried to bring home a deal last year only to get slapped down by Trump, will not be making the trip. Treasury Secretary Steven Mnuchin will be joining, but his name was place conspicuously behind Lighthizer in the White House’s February 8 announcement of the visit.
Lighthizer’s goals are ambitious—and probably too ambitious for his boss. In a report delivered to Congress last week, USTR called for China to make “fundamental structural changes to its approach to the economy and trade consistent with the market-oriented approach pursued by other WTO members.”
China has given few signals that it is prepared to make such radical changes. News reports suggest that there is not even a text yet putting in print the details of a possible deal. (Trade negotiations normally proceed through bracketed texts indicating remaining areas of disagreement.) That is not to say China is entirely unwilling to move. The Beijing government has recently reduced joint venture requirements for foreign companies in some sectors, accelerated financial services liberalization and cut some tariffs. But these still fall very far short of the sorts of sweeping reforms the United States is seeking.
Perhaps the best outcome would be that the two sides reach a vague framework agreement that leaves the current tariffs in place to maintain U.S. pressure, and kicks the hard issues down the road for continued negotiation. But Lighthizer has insisted that the March 1 tariff deadline will not be extended, putting himself under enormous pressure to deliver a robust deal by the deadline or to make good on the threat to raise tariffs again.
Will the president stand behind his USTR if the fight drags on? In his State of the Union speech last week, Trump said he is seeking “structural reforms” in China, a signal that he could not be bought off by the sort of deal Chinese leaders have been willing to offer that involves mostly large purchases of U.S. soybeans, gas and other commodities to help narrow the nearly $400 billion trade imbalance between the two countries.
But Trump has so far shown little patience for the steady commitment that real trade negotiations require. And unlike the NAFTA talks, where he strengthened Lighthizer’s hand by repeatedly threatening to walk away, with China he has regularly tweeted about “big progress” in the negotiations. A failure with China would jolt the markets badly, and Trump has come to see the stock market as an important benchmark of his performance.
But this was the choice Lighthizer made. He has long argued that Republicans historically were not a party of free traders but a party of economic nationalists. In Trump, he found the best chance he could for radically changing the course of what he saw as a deeply misguided U.S approach to trade policy in general, and to China in particular. In the next two weeks—the most important of his professional life—he will find out whether or not that was a good bet.