https://www.wsj.com/articles/a-panda-could-end-the-trade-war-11559507419
China gave the U.S. two giant pandas in honor of Richard Nixon’s 1972 visit—Ling-Ling and Hsing-Hsing. (We gifted two musk oxen. Fair trade?) China must have been trying to tell us something. “Ling” in Mandarin translates to zero, which happens to be the right percentage for tariffs. Zero, zip, nada, goose egg.
Last July, President Trump and European Commission President Jean-Claude Juncker agreed to “work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.” It’s not a done deal, and autos are—wink wink—national-security threats, but there’s that big fat zero.
Tragically, the U.S.-China trade war is out of hand and both economies are slowing. I’ve lost track of 10% and 25% tariffs on $200 billion in goods, or is it $325 billion? One more round of sanctions and already-expensive iPhones will pop another $200. No one wants that. It’s time to go back to basics.
I get it. We run trade deficits with China. They make all our shoes and toys and lots of apparel and Hibachi grills. So what? You don’t like cheap sneakers? But in the next breath, we hear about intellectual-property theft and subsidies of state-owned companies and that China will soon spend double the U.S. on innovation. We hear the screams from the Mnuchin-Navarro-Lighthizer mercantilist wing of the Trump administration that “something must be done!”
So we get threats and tariffs and whispers that it’s all just a negotiating tactic to stop China’s trade abuses—the art of the trade deal. Some art—now China telecom giant Huawei’s products are banned in the U.S., causing giant disruptions for U.S. software companies and chip makers. U.S. companies are discouraged from hiring Chinese engineers. Soybean exports are curtailed. Critical rare-earth metals from China might get cut off.
Why the impasse?
Currently, Vice Premier Liu He is part of China’s trade negotiation delegation, but maybe Treasury Secretary Steven Mnuchin is talking to the wrong people. I recently spoke with a Wall Street executive who was tasked years ago with collecting large debts from Chinese state-owned firms. It turns out that many People’s Liberation Army generals had commingled their own funds with state-owned firms doing derivative trades. The executive scrambled around Beijing until he finally got a meeting with the vice premier and diplomatically suggested he would have to sue these firms very publicly, but maybe that could be avoided. The vice premier replied, “I am not in a position to fix your problem,” meaning even he couldn’t cross the PLA generals.
I have no idea what powerful insiders are involved in China, but they still have corruption problems. China might never agree to U.S. demands. Remember that Japan’s lost decades came about because banks couldn’t call in bad loans for Yakuza-connected real-estate projects. We would be doing China a favor by fixing this problem.
So how do both sides save face and end this reckless tariff escalation? Simple. Drop all punitive tariffs and agree to Ling-Ling: zero tariffs, zero tolerance.
Meaning: Zero tariffs on everything, but if you’re caught stealing intellectual property, you can no longer sell into the U.S. at all. Rather than a political decision from faceless bureaucrats, give the World Trade Organization some teeth and a 30-day arbitration schedule on complaints. Don’t trust the WTO? (I sure don’t!) Have the Commerce Department and the Federal Trade Commission set up a similar violation court.
Huawei is a $107 billion company and has already offered to sign “no-spy agreements” with the U.K. and others. Let’s sign one with them. But with zero tolerance. If they are caught spying, no more U.S. sales. Then they must prove they’ve fixed the problem and put up, say, a $50 billion surety bond to do business with the U.S. We’ll be amazed how quickly compliance comes around. Same for intellectual-property thieves. Zero tolerance. You’re cut off from U.S. sales until you fix the problem and then put up hard cash backing your word.
Is China out-innovating the U.S.? Not yet, but bring it on. Huawei still uses Google Android software for their phones, though features are now cut off from Huawei. Their own operating system isn’t ready yet. Baidu, with research offices in Silicon Valley and Seattle, rivals Google and others in artificial intelligence. Great. Competition drives progress. An innovation war beats a trade war any day. Our startups will beat their state funding every time.
Ling-Ling. Zero tariffs, zero tolerance. Somewhere David Ricardo smiles. In addition to a stock-market relief rally, it would set up a huge global job and economic boom. And it would keep our trade partners honest. Apple doesn’t violate others’ patents because it knows a judge could shut down its $265 billion business overnight. Let’s make China think the same way.
