Critical Issues Confronting China Summary – China and the United States After Trump: View from Washington

February 27, 2017
Douglas Paal

Three months after Donald Trump's stunning victory in the 2016 presidential election, many think-tank people in Washington are still in disbelief, while others are grappling with a stream of Trump's impromptu pronouncements of his gut feelings. Will Trump do away with the status quo in many fronts with no regard to history or conventions at all? Can Trump really deliver his campaign promises, such as “reverse the U.S. trade deficit and bring back jobs?”

Douglas Paal, Vice President for Studies of the Carnegie Endowment for International Peace, captured Washington's current mood and explained some tensions inside the executive branch. He advised to have a longer-term frame of mind and look into what he called “the deep state” of the political structure, when evaluating Trump's propositions and navigating an uncertain future.

On the making of the U.S. trade policy, there are at least four centers of power involved, each headed by a presidential appointee: Peter Navarro, the Director of the National Trade Council inside the White House; Wilbur Ross, the nominated Secretary of Commerce; Gary Cohn, the Director of the National Economic Council; and Robert Lighthizer, the U.S. Trade Representative, formally designated by the Congress to represent U.S. interests in international trade negotiations and respond to U.S. business needs. They will have to fight out what the U.S. trade policy will ultimately be. When President Reagan had three de-facto chiefs of staff in the 1980s, talking about different policy objectives and priorities to different media outlets at the same time, James Baker eventually prevailed over the others after about six to eight months. Only time will reveal who has the final word on the U.S. trade policy.

During his presidential campaign, Trump talked about imposing 45 percent tariff on Chinese imports into the U.S. Although Section 301 of the U.S. Trade Act of 1974 authorizes the President to take all appropriate actions, including retaliation, to obtain the removal of any practice or policy of a foreign government that is unjustified or unreasonable, and that burdens or restricts U.S. commerce, Paal did not think imposing a high tariff is realistic in today's environment. This would amount to a tax on the American people, which House Speaker Paul Ryan is adamantly against.

Trump could choose to impose voluntary restraint agreement (VRA) on Chinese imports, as President Reagan did in the early 1980s on Japanese imports, especially Japanese steel and automobiles. But this could only have symbolic significance in terms of meeting political needs at home, instead of any real effect in re-balancing Sino-U.S. trade, because someone in the U.S. in the related supply chain will be hurt. Paal predicted that VRAs would make the U.S. less competitive in general.

He posited that protectionist trade policy, combined with increasing infrastructure investment, a boost of defense spending from $600 billion and a corporate tax cut, would lead to a stronger dollar and rising interest rates, both of which would then lead to an even larger U.S. current account deficit, just the opposite of Trump's claim. By then, Trump could only wish that people already have forgotten his promises in the first place.

On top of those trade officials, there is Steve Bannon, Trump's Chief Strategist in the White House, with a very conservative provenance at the far-right news media, Breitbart News. There is also a conservative Vice President, Mike Pence, with close ties to Congress, where he served as a Representative from Indiana for a decade (2003-2013). At the National Security Council (NSC), functional directors have been named to supersede regional directors to reach the head of the NSC staff, National Security Advisor Michael Flynn (who later resigned on February 13). The Senior Director for Asia at the NSC is Matthew Pottinger, a Wall Street Journal journalist-turned marine, who served under Flynn in the U.S. Marine Corps. These people will have to fight out the new bureaucratic impediments on national security issues.

President Xi Jinping's congratulatory phone call to Trump after the election was a good start. With the 19th Party Congress pending later this year, Paal suspected, China is looking for a calm and peaceful relationship with the U.S. Taiwan's President Tsai Ing-wen's phone call with Trump in December was more ceremonial than an intentional reversal of the American One-China policy. Taiwan's establishment also denies any intention to change the status quo after Beijing's insistence on the One-China policy as a cornerstone for Sino-U.S. relations and cross-strait relations. Taiwan is not seeking instability.

Paal pointed to signs of stability in U.S. policies with some of Trump's cabinet appointees. The Defense Secretary, James Mattis, re-affirmed the U.S.-Japan alliance during his first official visit to Japan, while sending a message back home that the U.S. alliance structure is sound. Paal warned not to trust rumors or suspicions reported in major U.S. media until they're formally announced by the administration. As we move forward, what will become more important than Trump's impromptu pronouncements are those deeper relations underneath the surface between the White House and the Capitol Hill, embedded in the bureaucracy and the personnel transition from one government agency to another. This is what Paal called “the deep state.” This deep state will keep churning along and will make a strong effort to keep things in check and balance.

In conclusion, Paal expressed disappointment at the absence, since the election last November, of future policy indications vis-a-vis Russia, China, security order of the Asia Pacific, the international financial infrastructure including the future of Bretton Woods institutions, among many other issues. Most of the attention, inside and outside of the government, has been preoccupied by personalities. Paal urged the new Trump team to take a pro-active stance on these important policy issues.