Good Cop, Bad Cop

Despite different strategies, US, EU and Japan united to curb China

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Personally, I'm fed up to here with China: European Trade Commissioner Cecilia Malmstrom, with Robert Lighthizer (left) and Hiroshige Seko. Source: Reuters

Despite disagreements about US policy on punitive tariffs, the European Union, Japan and the US are united in their objective to bring China into line on international trade rules. China’s brand of “state capitalism”, its subsidizing of important industries and the ongoing technology transfer from Western nations are seen as problematic by all three.

Now, the maverick US policy of escalating tariffs is actually bringing the three partners closer together. EU trade commissioner Cecilia Malmström called the latest round of US tariffs on Chinese imports “very regrettable.” But she praised the commitment of US Trade Representative Robert Lighthizer and Japanese Economics Minister Hiroshige Seko to work with her on reforming World Trade Organization rules to curb some of China’s practices.

“We agree in part with the US criticism of some of China’s practices,” Ms. Malmström said Tuesday, “but we’re not in accord on the methods.” Nonetheless, she said, talks between the three partners are going well and even the US administration is “very engaged.” The trio will meet again next week.

And all of this tit-for-tat could actually be helpful for the EU. Because while the US is busy imposing more tariffs on China, the EU is planning more talks and more diplomacy. In July, Brussels and Beijing put together a new working group to talk about WTO rules. Sources say European diplomats are quietly happy about the new US tariffs – they’re going to put more economic pressure on the Chinese and, they hope, make them more amenable during negotiations. It’s a classic good-cop-bad-cop routine.

Closer than ever

Rules made by the World Trade Organization, or WTO, date back to the 1990s – before China joined the multilateral organization – and they don’t cover some of China’s practices, such as subsidies to state-owned enterprises. In order to strengthen these rules, the European commissioner needs allies to put pressure on China because WTO changes require unanimous approval.

US Commerce Secretary Wilbur Ross noted in a television interview on Tuesday that Washington has joined with the EU and Japan to issue three trilateral proclamations against China, and the two allies have invited the US to join them in the WTO consultations.

“So it may seem strange,” Mr. Ross said on CNBC, “but the imposition of these various tariffs has actually brought us closer together to those two major allies than we were before.” It went without saying that this was one of the administration’s objectives in rolling out the tariffs.

South Carolina Senator Lindsey Graham, a strong supporter of President Donald Trump’s trade policy, spelled this out last month after spending a day golfing with the president.

“The goal of President Trump is to unite the world against Chinese business practices that are outside the norm,” Mr. Graham said. He acknowledged that the tariff standoff could cause some economic pain. “You’ll pay more in the short-term,” he said. “Pay now or pay later. They cheat us too much.”

Standing up to a strategic competitor

To stand up to China, the US administration is not only imposing tariffs but also working to expand the powers of the committee on foreign investment to block even more Chinese acquisitions in the US.

China’s leaders are beginning to see this is not a short-term tactic, especially after Mr. Trump in December branded the country a “strategic competitor” – that is, an economic aggressor seeking to weaken the US.

“That’s a blow for China,” said Cheng Li, an analyst at the Brookings Institution. “In Beijing’s view, much can be discussed as long as it is on a partnership or friendly basis. But you can’t negotiate as enemies or opponents.”

Several Handelsblatt reporters contributed to this article. Darrell Delamaide, a writer and editor for Handelsblatt Global based in Washington, DC, adapted this article into English. To contact the author: d.delamaide@extern.handelsblatt.com.

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