American ideals coupled with the commercial self-interest of American business and industry drove the policy of engagement, and even after the 1989 massacre of student protesters at Tiananmen Square, sustained momentum for China’s accession into the WTO. Despite China’s known unfair trade practices, it was thought that problems would eventually disappear as China adopted rules and norms as conditions of its accession to the WTO while deepening its integration into the global trading system. Yet, despite this strategy of engagement, China has not implemented expected substantive structural reforms consistent with the spirit, if not the letter, of its WTO obligations.
Over the past 18 years, China has become much wealthier and more powerful by exploiting the open global system of trade and investment while adhering to a statist, mercantilist- Leninist approach to its economy and governance. Chinese Communist Party (CCP) leaders from Deng Xiaoping to Xi Jinping, allowed a greater role for market forces when perceived to be in the party’s interest, but consistently viewed the primary purpose of economic policy and activity as merely another means of enhancing the legitimacy of one party rule under the CCP in addition to strengthening the power of the Party rule over and above all other Chinese actors. Maintaining a monopoly on domestic political power — by all means necessary — has been the primary imperative for CCP leaders since 1949. They have consistently sought to enhance CCP legitimacy through state-directed economic success while maintaining Party control of the military and suppressing any challenges or threats to Party primacy. At the opening of the 19th Party Congress in October 2017 this goal was explicitly stated by Xi Jinping: “government, the military, society and schools, north, south, east, and west — the party leads them all.” While there were reform efforts during the 1990s as China sought WTO accession, those efforts slowed following China’s accession into the WTO. Xi has now, arguably, accelerated the trend away from reform. Furthermore, Xi’s approach is entirely consistent with his predecessors’ in that there has always been unequivocal recognition that full economic liberalization would be incompatible with authoritarian, one-party rule.
American optimism that engagement would drive structural economic reform in China has now clearly collided with the CCP regime’s strategy of reaping benefits from open access to markets and investment while keeping sectors of its economy relatively restricted or closed, in effect, a policy of partial disengagement. Over the past 18 years, optimism has yielded to pessimism. Initially, American public opinion of China following its accession to the WTO largely remained positive but never reached levels seen prior to the Tiananmen Square crackdown. However, during the second term of the Obama administration, public opinion shifted to preponderantly negative. Pew Research Center polling conducted August 13, 2019 found 60% of Americans have an unfavorable opinion of China. This is a 13% increase in unfavorable opinion from 2018 to 2019, marking the largest 12-month shift in public opinion since the Tiananmen Square massacre. American business and industry, the most avid supporters of engagement with China, have also become more pessimistic. This growing pessimism is reflected in the annual surveys issued by the American Chamber of Commerce in China. These companies have grown more frustrated over time with China’s market restrictions and intellectual property theft. In fact, prompted by the complaints from American business, the United States brought 23 cases to the WTO against China for dispute resolution from 2004-2018 — of these, 19 originated during the administrations of George W. Bush and Barack Obama.
Yet, in the face of favorable rulings in nearly all the resolved cases, market distorting subsidies, theft of intellectual property, and unfair tax and regulatory treatment of foreign competitors in the Chinese market, have not abated. The inability of the WTO to effectively address these concerns has now resulted in a more general alignment of views in the United States that it is time to take a tougher approach to China, that engagement and reliance on WTO dispute settlement alone are insufficient in dealing effectively with a nonmarket economy of this size. The administration of Donald Trump, recognizing the growing consensus that a stronger approach to China was needed, began using escalating tariffs and targeted sanctions in hopes of unilaterally coercing the CCP regime to commit to opening its market to fair competition, eliminating subsidies and preferential treatment of stateowned enterprises, and stopping the theft of intellectual property and the requirement of technology transfer as a condition for participation in the Chinese market. This approach was predicated on Beijing acquiescing quickly in the face of unilateral coercion by the United States. But these tactics do not appear to be politically sustainable for the United States, nor are they likely to be successful in driving real change in China. Limits to this plan became starkly evident in the aftermath of the breakdown in negotiations in May 2019. It remains unlikely that an agreement achieving a significant degree of structural reform is achievable solely through unilateral pressure by the United States, despite an agreement to resume negotiations made at the June 2019 G20 meeting in Osaka. Further limitations on this approach derive from slower global economic growth and the negative impact on key sectors of the American economy resulting from the tariff war. These limitations, along with the lack of consensus within the Trump administration on whether to back away from the trade war to get a “great deal” or pursue it more vigorously, have led to confusion and some division over American support for a tough stance on China. Members of Congress are concerned about the mounting economic damage resulting from tariffs and are seeking alternative, more effective means of keeping pressure on China. A sustainable long-term strategy is needed to avoid either merely accepting the status quo ante, or the alternative of worsening economic headwinds from escalation of the tariff war. But neither approach achieves the goal of meaningful reform in China.