Early on Monday morning, the Trump administration said it had reached a preliminary agreement with China on a trade deal that would reduce tariffs on both sides. This comes after over a month of uncertainty caused by President Trump’s ‘Liberation Day’ tariffs. While Wall Street will cheer this news, investors and policymakers should remain wary of any trade agreement made with China.
Back on April 2nd, President Trump announced tariffs on a wide range of countries in what he called ‘Liberation Day.’ For China, these tariffs were combined with tariffs Trump had already put in place in response to China’s role in the production and smuggling of fentanyl. The Chinese didn’t take this lying down, responding with a series of tariff hikes on U.S. goods. Back-and-forth responses between the two nations resulted in tariffs from each country exceeding 100% on imports from the other country.
China is an important trading partner for the U.S.. The total value of trade between the two countries is almost $600 billion. This doesn’t factor in the investments, educational exchanges, and other partnerships between the two countries. By itself, China is responsible for just under 30% of the world’s manufacturing output. Almost double that of the U.S.. Therefore the U.S. has a lot to lose in a trade war with China.
Even excluding the recent trade war, China’s trade relationship with the United States has been fraught in recent decades. Market restrictions, IP theft, unfair trade practices, and fentanyl production are just a few of the issues between the U.S. and China. Despite frequent protests, especially on IP theft and fentanyl, there has been little improvement on the Chinese side.
Even areas where China pledged to do better have seen little actual improvement. In 2015, China agreed that it would not steal any intellectual property. However, in the ten years since this agreement, tech sector experts have seen little long-term improvement. Estimates of the value of IP stolen by Chinese entities range from $180 to $540 billion per year. Economic theft of that magnitude is hardly a sign of a reliable partner.
On the fentanyl front, China has also failed to make a positive impact. Despite a brief period of cooperation in 2019, China quickly backed off its efforts at curbing drug smuggling to the U.S.. China strictly enforces drug trafficking within its own borders but is indifferent at best to stopping drug smuggling to other countries. In other words, the Chinese government is willing to protect its own citizens from drugs but not those of other nations.
All this should be remembered in any trade deal the Trump Administration makes with China. While today’s announcement leaves a lot of details to be sorted out, there are two reminders the administration needs to bear in mind. First, the Chinese government has a history of failing to follow through on international agreements. In addition to those previously mentioned, China also failed to follow through on the trade deal it made with the U.S. in Trump’s first term.
In addition, China today announced another violation of the Sino-British Declaration on the Question of Hong Kong. China has basically imposed on Hong Kong the authority to prosecute national security cases. China promised that the city of Hong Kong would enjoy a high degree of autonomy for 50 years after the city was returned to China. However, China has spent the past two decades reneging on this agreement by asserting more and more control over the city.
Second, the Trump administration needs to have some kind of incentive for the PRC to uphold its end of the deal. While the UK can complain about China violating the Joint Declaration, it has done little to protest the violations by Beijing. To avoid a similar situation, the United States needs to factor enforcement mechanisms into the deal. Sanctions, tariffs, and other punishments should all be on the table if China fails to stem the tide of fentanyl, IP theft, and other problems flowing from its borders.
The Trump administration seems to be moving into the dealmaking phase of its trade war. As it does so, it must remember that although China is an important trading partner, it is one with a very questionable record of reliability. Policy makers would be wise to remember recent history, including that of Trump’s first term. When it comes to dealing with China, distrust and verify.
Matt Cookson is an alumni of the Young Voices Contributor Program and was a Middle East History and Policy Fellow with Young Voices. He also works in the supply chain for a U.S. Defense Contractor. His commentary has appeared in the Mises Institute, Real Clear Politics, the American Thinker, Providence Magazine, China Source, and the Idaho Freedom Foundation. You can follow him on X @MattCookson95.
