Talking Trade

Nick Schifrin shares his U.S.-China perspective before the NaplesNEXT Ideas Festival.

Nick Schifrin

On March 2 and 3, the 2020 NaplesNEXT Ideas Festival will bring a slate of big-name experts to the Naples Grande Beach Resort to discuss “What’s Next?” in our world. Topics covered by the innovators, policy makers, trendsetters, influencers and philanthropists on stage will range from female leadership to healthcare breakthroughs.

 

Nick Schifrin, foreign affairs and defense correspondent for “PBS NewsHour,” will be sharing his thoughts on global foreign policy and markets in 2020 and beyond during his March 2 panel. We spoke with him prior to his appearance to get his insight on the United States’ ongoing trade war with China, as well as the state of U.S. diplomacy in general.

 

Gulfshore Business: China’s unfair trade practices and alleged currency manipulation and intellectual property theft are cited as reasons for the U.S. to impose tariffs. Is that the best way to fight back, or are there more diplomatic solutions or alternatives?

Nick Schifrin: Whether as a businessman, candidate or president, Donald Trump has been very consistent on a focus on trade deficits, trade numbers and the use of tariffs to try to change other countries’ behaviors. So Donald Trump has for decades believed that tariffs are effective. He is surrounded, however, by people who have been advising him of alternatives, that there are other manners through which they could exert some leverage over China to try and change Chinese behavior. Some are diplomatic, some are economic. The president’s focus has largely been on tariffs, but the administration’s focus has gone further than tariffs. There are sanctions and visa restrictions. There has been technology pressure, the tech decoupling that is beginning to happen because of restrictions put by the Trump Administration on American companies selling technology to China. And there is diplomatic pressure relative to the movement of Chinese diplomats in the U.S. and trying to get what the U.S. calls reciprocal policies compared to the movement of U.S. diplomats in China.

 

GSB: The Phase 1 trade deal between the U.S. and China was signed in January 2020. What impact do you think that will have?

NS: Phase 1, at the very least, is a pause on increasing conflict. There was the possibility that the Trump Administration would increase tariffs on China, China would respond and the world economy would suffer. Because of a Phase 1 partial truce, economists don’t believe that will happen. They don’t believe that the world’s two largest economies will increase their trade confrontation, and that’s where we’ve seen markets stabilize and actually go up. If nothing else, most people believe that Phase 1 at the very least provided a level of expectation and stability that is expected to take us through the year and through the [2020] election.

The larger question of whether Phase 1 makes a big difference is a subjective one. The Trump Administration argues that China has never gone this far in pledging to respect intellectual property, in pledging to not force American companies to transfer technology in order to get access to the Chinese market. But most independent observers say that China has made these promises before, and not lived up to them in the past. And the architects of the trade deals in the Trump Administration have been focused on fundamental change in China, and even they admit there needs to be a Phase 2 to get that fundamental change.

 

GSB: If the China trade war isn’t fully addressed until after the 2020 election as speculated, what consequences might there be from that?

NS: Most U.S. officials I speak to, most independent experts, most China watchers believe this will not get solved until after the 2020 election. The markets seem to have built in that expectation, as well, that Phase 1 is a temporary truce or partial truce and if there is a Phase 2, it will come after the U.S. election. So there doesn’t seem to me to be any great worry that the next phase of this deal will be delayed, because it’s already been delayed and the expectation is that it won’t happen until after the election.

What is interesting at this point is that there are few things that Washington agrees on, and few things that the two parties agree on. And one of those things is confronting China. If nothing else, the Trump Administration confronting China has brought Democrats worried about China in the past on board. Most experts I talk to who are keenly interested in China believe that the confrontation that started at the end of the Obama Administration and was ramped up considerably by the Trump Administration will actually continue after the 2020 election, regardless of who is president. The question of what the next trade deal looks like is one that will not be only about Donald Trump. It is expected to continue into the future. The larger question is, “What does the future look like?”

 

GSB: Could the coronavirus outbreak have any impact on the trade war?

NS: There is no direct level of correlation between a health crisis in China that even American officials are worried about today and the trade war. But inside China, though, this health crisis and the very aggressive steps that Xi Jinping, the president of China, has taken to try and corral the virus – these do represent a political challenge to the Communist party and to Xi himself. Nobody in the world has ever tried to essentially quarantine this many people. And there was a lot of criticism of how the Chinese Communist party handled the last outbreak, which was SARS. And so the Chinese have tried to take steps to be more open. But if this crisis continues or even gets worse, and if there are questions about how the Communist party is dealing with it, that is a political challenge for the party. And if the party is challenged politically internally, that could affect external negotiations, but we don’t know exactly how.

 

GSB: Are there any upsides to a trade war?

NS: If you were to ask the president and many of his advisors, the upside to this particular trade war is to try to change Chinese behavior. They believe that by putting more pressure on China, mostly through tariffs, that China will over time change its behavior and those things that the United States has been complaining about for years, including intellectual property theft. The idea that the Trump Administration has is that even if there is some economic hit that the United States has to take short-term, the medium- and long-term benefits of confronting China, including through trade, are to try to change Chinese behavior. They do believe that that is the upside, even if most economists looking at just trade itself believe that there is no upside and that there are other ways to go about changing Chinese behavior.

 

GSB: When you’re reporting abroad, what do you hear from allies about the current state of U.S. diplomacy in general?

NS: Much of the world sees the U.S. as focused on short-term counterterrorism gains rather than long-term stability. [I’ve also heard] specific complaints about the Trump Administration among our historic allies like Western Europe, where Western European nations feel bullied by Trump himself and his aides, according to officials I’ve talked to. South Korea is another example of a historic ally that doesn’t feel that it’s getting the level of friendship from the Trump Administration that it’s gotten from its predecessors. Mostly because the president focuses on trade more than his predecessors, and uses the rhetoric of historic U.S. alliances less. But there are countries out there who praise the Trump Administration’s approach – notably Israel, who does see positive developments in the Trump Administration taking on Iran. Sunni Arab countries and their senior officials praise what President Trump is doing and people in China’s backyard, while careful with praise of the U.S., believe that the U.S. is taking the right stand in confronting China.

 

GSB: The president has at times made abrupt, unexpected announcements about increasing tariffs on China, perhaps taking it by surprise. Is there any fallout from that?

NS: When Donald Trump was elected president and began his first term, there were people, diplomats in Washington and outside of Washington, who struggled to understand the decision-making and the communication of those decisions. When, for example, Bob Woodward’s book came out [Fear: Trump in the White House], there were foreign diplomats in Washington who scrambled to buy this book to understand what President Trump was about. We are now three years into the Trump Administration and the officials that I talk to say they have gotten used to the idea that the president of the United States will make declarations on Twitter.

This president in part believes there are advantages to the world not knowing what he’s going to do and what he’s going to say. It’s what President Nixon’s aides used to call the madman theory – if you are unpredictable, then you keep your opponents off balance. That is something President Trump has brought from the business world into international diplomacy. There are examples of kind of eye-rolling around the world, but that’s not universal. Mostly people have gotten used to this unpredictability, and the president thinks it’s an advantage. He believes that, like in business, if your adversary or the person across the table doesn’t quite know where you’re going, then it makes it more difficult for them to plan and prepare, and therefore it gives the president an advantage.

Where people are more concerned about that are the mid-level officials across agencies of the U.S. government, many of whom have been in government for decades. They are used to a much more process-oriented policy. They’re used to a longer process and a more deliberative process, and some of them I’ve talked to are uncomfortable with the speed at which decisions are made, and that some are not the products of any process but are more decisions made by President Trump himself or by him and a very few number of aides. But President Trump is not the first president to make decisions that are his rather than the product of a long process, and the world has largely gotten used to the idea of the president speaking via Twitter and speaking off the cuff.

 

GSB: Does the trade war threaten our country’s position in the global economy? Can China take its business elsewhere?

NS: Starting small and zooming out, there are other markets for what China is buying. For example, soybeans. China has gone to other countries, including Brazil, to buy a product it has historically bought from U.S. farmers. On a product-by-product level, China does have other markets. But the Chinese economy is more dependent on exports, many of which go to the U.S., than the U.S. economy is dependent on Chinese imports. So the medium- or long-term outlook for this is that the Chinese economy is vulnerable to a trade war, and that so long as the U.S. dollar remains the primary currency across the world, and so long as U.S. banks remain the intermediary for those dollars, the United States’ ability to maintain its place in the global economy is not challenged. The United States’ ability to use economic sanctions is not challenged, because the U.S. dollar is primary.

 

For information about NaplesNEXT 2020 or to register for this year’s event, visit naplesnext.com.