Trump Closes Era of Constructive Economic Engagement With China

The U.S.’s era of constructive engagement with China on economic matters is over.

That was the message as President Donald Trump ordered tariffs on Chinese imports worth $50 billion and investment curbs on Chinese companies. After nearly half a century of trying to woo China into the club of major market-based economies, Trump made clear his administration plans to brandish sticks, not carrots, to achieve U.S. trade goals with Beijing.

The question is whether the gambit will lead to a healthy rebalancing of the world’s two biggest economies, or trigger a punishing trade conflict that sideswipes the broadest worldwide expansion in years.

“We’re in a very precarious moment,” said Orville Schell, director of the Center on U.S.-China Relations at the Asia Society. “The U.S. has never pushed back to this degree. We don’t know if this will be a constructive or destructive move.”

So far, investors appear to fear the latter. U.S. stocks fell the most in six weeks amid concerns the U.S. tariffs will provoke China to retaliate. “We don’t want a trade war but we are not afraid of it,” said China’s ambassador to the U.S., Cui Tiankai. “If people want to play tough, we will play tough and see who will last longer.”

Hours later came the inevitable counter punch: China’s Commerce Ministry on Friday said it plans a 25 percent tariff on U.S. pork imports and recycled aluminum, and 15 percent tariffs on American steel pipes, fruit and wine.

“This seems to be the beginning of an era of reversing globalization,” said Tao Dong, vice chairman for Greater China at Credit Suisse Private Banking in Hong Kong. “If that is true, the impacts to the Chinese economy, to the Sino-U.S. relationship, to the global economy and to the world prospects could be huge.”

China Engagement

With his landmark visit to China in 1972, Richard Nixon set the U.S. on a path of using diplomacy to convince Beijing to open the Chinese economy to market forces and play by the rules of the American-led world order.

China took a major step toward integrating into that order in late-2001, when it joined the World Trade Organization, a move supported by the Clinton administration.

After years of much talk and little action, Trump officials say Beijing hasn’t lived up to promises to deliver economic reforms, making it necessary a more forceful approach. On intellectual property, China repeatedly failed to act on U.S. concerns about practices such as forcing U.S. companies to transfer technology to Chinese firms, an official from the U.S. Trade Representative’s office said this week.

‘Seismic Shift’

The China tariffs mark a “seismic shift from an era dating back to Nixon and Kissinger, where we had as a government viewed China in terms of economic engagement,” White House trade adviser Peter Navarro told reporters Thursday. “That process has failed.”

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