On Thursday, top negotiators from the U.S. and China will convene in Beijing with the goal of sealing a trade deal. What they should not forget is that a willingness to share a little victory will go a long way.
A problem in this negotiation is that each side at least says in public that it wants total capitulation from the other. Our president says that he is the world’s leading deal-maker. He cannot now disappoint his base by signing a balanced deal. The other leader is a political strongman, and it is difficult for strongmen to acknowledge making concessions.
The principals on each side of a negotiation hear conflicting and mutually inconsistent demands from their constituents outside the room, and hear totally different demands from the other side of the table. Somehow, they must satisfy the other side of the negotiation and pacify most of their own constituents to get the deal done without losing their jobs in the process.
An international trade agreement can be even more difficult than a domestic negotiation. The interests of the other side can be more disjoint from ours than are those of two ideological sides within our country. Many Americans do not understand why foreign demands deserve any consideration at all. If another nation won’t capitulate, why don’t we just reject them and make everything they want to sell us? After all, we will get more jobs that way.
And yet U.S. political negotiations usually end successfully. Generally (though not always), an achievable deal is better than no deal at all. This is true even in trade, where (though many Americans do not understand it) other nations have raw materials that we do not; we cannot competitively make everything we want; and our standard of living is higher because we trade for low-value components and products, and devote our limited resources of labor power and capital to making high-value goods and services.
For these reasons, the U.S.-China negotiations should succeed. In particular, a no-deal outcome would be really bad for the American people. But there are serious roadblocks.
A fundamental tenet of trade negotiations is that you must leave the other side an honorable exit, so that they can say that they won something while you tout your victories. After all, if the other side’s outcome is a bad deal, why would they sign at all?
Many Americans probably believe that the Chinese leader in fact can capitulate to U.S. demands, because with his authoritarian power he can do anything he wants. In fact, the Chinese leader is as politically constrained as are Americans, because of the risk of civil unrest (think Tiananmen Square). China can impose only so much dislocation on its people.
U.S. negotiators face a fundamental problem. Because the Chinese trade misbehavior (intellectual property theft, restraints on inbound foreign investment) that triggered this dispute is opaque (certainly relative to the U.S. punitive tariffs), Chinese concessions can be hard to verify. Even Chinese promises to buy specific amounts of U.S. products might just replace purchases that they would have made anyway.
On the other side, the president’s recent talk about leaving his punitive tariffs in place after the Chinese make concessions sounds like an unfair heads-I-win-tails-you-lose trick. You give up your trade violations, and in return I give up…nothing – not even the tariffs that I said were imposed only to counterbalance those violations. Expect to see that U.S. position as a part of the dispute.
Finally, China has followed a “divide and conquer” strategy, offering foreign firms bad terms (with respect to, for example, intellectual property “sharing”) that those firms feel compelled to accept for fear of being locked out of the huge Chinese market. Ideally, other nations would join us in a united negotiating front to end those practices. However, the nascent U.S. global trade war (for example, the steel and aluminum tariffs) has antagonized our allies and made that united front less effective.
There is a lot of pride on both sides of this negotiating table. In the negotiations this week, we need a clearer understanding of the ill consequences of a stalemate, and a willingness to share a little victory. Failing that, the American public may come to understand more clearly that a breakdown of trade is bad for everyone.