RealClearWorld | Shanker A. Singham, Alden F. Abbott
The May 14-15 summit between President Trump and President Xi Jinping in Beijing produced familiar outcomes, including discussions of a new U.S.-China “Board of Trade,” anticipated Chinese purchases of American agricultural products, and potential tariff reductions on non-sensitive goods. However, the summit failed to secure meaningful commitments on industrial subsidies, state-directed overcapacity, or broader distortions within China’s economic system. Beijing's state-directed economy leverages capital, credit, land, energy, and regulation to fuel industrial policy, resulting in chronic overcapacity in sectors like steel, aluminum, solar panels, shipbuilding, electric vehicles, and batteries. This surplus is pushed globally at non-market prices, undermining American manufacturers who cannot compete against state-backed rivals. The U.S. should avoid a repeat of the 2020 Phase One deal's managed trade approach, instead focusing the proposed Board of Trade on market distortions. Washington must press China for comprehensive subsidy accounting, sector-by-sector capacity discipline, an end to discriminatory local-content requirements, and allowing loss-making firms to exit. Enforcement mechanisms, including deadlines, benchmarks, and automatic tariff snap-backs for noncompliance, are crucial. Coordination with allies is also vital to prevent excess capacity from being rerouted. A durable trade peace necessitates structural reform, transparency, and equal competitive conditions.
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