A New ‘Problem’ Emerges In US-China Trade Talks

Listen, trade talks between the US and China are “making very good progress across the board.”

You know that’s true because Larry Kudlow said it on Fox, the source of all things that are true.

We jest. Virtually nothing said on Fox by anyone is ever completely true, and Kudlow has developed a penchant for telling lies in the service of perpetuating the MAGA myth. That’s basically Larry’s job description – he’s economic propaganda minister.

Kudlow’s comments on Tuesday were generally harmless, though. We know progress has in fact been made and that’s pretty much all he was willing to say. “Let’s just take this one day at a time,” he remarked, adding that right now, the US side “likes what we see.”

“Progress” aside, there’s a new “worry” related to the sticky issue of enforcement which has predictably emerged as one of the last major hurdles, after China gave some ground on IP theft and forced tech transfer and the US reportedly walked back demands around industrial subsidies.

Here’s Bloomberg to explain:

The [enforcement] mechanism being contemplated, U.S. officials have said, would require consultations between U.S. and Chinese officials over disputes but ultimately allow either side to impose trade sanctions unilaterally. The deal may also see both sides agree to forego their right to retaliate or challenge any enforcement action by the other at the WTO.

These latest details come on the heels of comments Steve Mnuchin made over the weekend regarding a “two-way enforcement” regime that would entail the US agreeing to subject itself to accusations of violating the agreement.

Now, the sane among you are probably thinking that if you go out and shake the tree (as Trump did) on the way to demanding that China engage in bilateral trade talks outside of the WTO in an effort to strike some kind of grand bargain for the ages (“the granddaddy of them all“, as the US president calls it), then it stands to reason that attached to any such deal would be a two-way enforcement regime. Because after all, what kind of deal would it be if only one side out of two had the right to punish the other side for violations and there was no independent arbiter? That wouldn’t be a “deal” in any real sense, now would it?

But that’s not the way “legal scholars and the business community” see things. Just ask Daniel Price, former senior economic adviser to President George W. Bush, who told Bloomberg the following:

[If the U.S. allows China reciprocal enforcement powers, it would make China] judge, jury and executioner as to whether we have honored our obligations. I don’t think the U.S. business community is sufficiently alert to the risk of constantly being exposed to unilateral enforcement action by China.

Maybe not, but it’s probably safe to say that the Chinese business community wasn’t “sufficiently alert to the risk of being constantly exposed” to Donald Trump over the past two years, either.

Point being, if both sides are going to go ahead and agree to cut the WTO out of the equation, then the only way for this to be any semblance of fair is if both sides have a say in determining if there was a violation – otherwise, nothing stops Trump from simply conjuring a perceived grievance and slapping on more tariffs.

Previously, Bob Lighthizer claimed the US would pursue a unilateral enforcement regime and as Bloomberg goes on to note, “Congressional aides say concerns about Trump’s trade policies are only likely to grow on Capitol Hill if a deal gives China power to strike American exports as it wishes.”

Part of that concern presumably stems from the fact that in addition to granting the Chinese the right to hit US goods with duties at their discretion, it would also cement a pivot away from the WTO, something lawmakers on both sides of the aisle are terrified of.

Again, it’s not clear what the alternative here is. Trump is wholly irrational and has demonstrated time and again that he lacks even the most basic understanding of how global trade works. So, it shouldn’t exactly come as a surprise to anyone that Beijing would be wary of any deal that gives his administration unilateral enforcement authority.

Think about it this way: Would you do a deal with Trump where he had the final say on whether you had violated the terms? Of course you wouldn’t.

You can draw your own conclusions, but the bottom line is that this is just another example of how going rogue and winging it at every conceivable turn ends up producing ridiculous outcomes befitting of the absurd nature of the original crusade.