On his TV show, former Trump administration official Larry Kudlow was talking to Trump's U.S. Trade Representative Bob Lighthizer about various trade issues, including whether Lighthizer thought the Trump administration's China trade policy was successful. Not surprisingly, Lighthizer thought this policy was quite good, even coming close to being historically great and Churchillian. Here was the exchange:
Kudlow: Was the US-China Phase One trade deal a success or a failure? ...
Lighthizer: ... So I'll take a half a step back. Was the President's China policy a success? I think it was a success. Probably the greatest success of his presidency, or at least arguably. I think it was the most impactful and successful policy of a modern American president.
And here's why I say that. You have to start with the proposition that China is an existential threat to the United States. They do not like us. They want to be the leader of the world. They do everything they can to hurt America. So you start with that. Then you go back and you think, where were we six years ago? People didn't understand that. Trump understood, but people did not understand that. And he basically changed the way the United States thinks about that, and in truth, the world, because everyone now understands that issue. ...
Kudlow: ... Trump rang the warning bell, big time. And that's really what you're referring to.
Lighhtizer: He convinced the world that we have a conflict. Think of it as a little bit like, and I don't want to draw too far on this analogy, but a little bit like the 30s with Winston Churchill, it's a little bit like that. ... he's now, the world's in a different spot. We understand we have a problem.
Now, to get to your specific question, was the Phase One deal a success? First of all, it was successful in helping to convince the world of the most important thing you need to know, that we have an existential threat, if you're on the West, if you're an American. So in that sense, it was a success.
Let's go back and look at the individual parts of it, because there's a lot of confusion about this. People say, was the agreement about buying stuff? No, that was a very small part of it. So the most important single part of that agreement was we kept the tariffs in place. The tariffs were very important, they reduced the trade deficit, which they did. They took away the advantage that was unfair, that China had as a result of its unfair practices and subsidies. So the most important single part of that was the tariffs are still in place, and they're still doing the right things. And if President Biden gets rid of them, in my judgment, that will be a betrayal of the American people. ...
...
Let me spend one more second on the trade deal. All right, so the trade deficits, I mean, the trade tariffs stay, and that's the most important part. The second part, there was systemic changes. This is Phase One I'm still talking about, and they did most of those. The third part, and we can talk about that, they introduced and changed the laws that they said they would, agriculture, a variety of other things. Now it wasn't perfect, but it was pretty good. On the purchases side, they were less successful, the agreement was less successful. Now, there were interventions, there was COVID. There were a lot of reasons, but that's not an excuse. But most importantly, the thing's enforceable, and if they're not following the agreement, we should raise tariffs to retaliate.
Kudlow: Forced transfer of technology?
Lighthizer: So the forced transfer of technologies, they have stopped it as a matter of policy. Whether it stops in practice is something that a USTR or an administration should take a case to the Chinese if they find the case. And if they do, retaliate against it.
Putting trade aside for a moment, what I'll always remember about Trump's China policy was that he appears to have endorsed, or at least not objected to, China's treatment of the Uighurs and the Hong Kong crackdown. It would be interesting to see the counterfactual with a U.S. president who cared about these issues and pressed Xi Jinping on them, but we'll never know what would have happened.
On trade, I had the following reactions to Lighthizer's points.
First of all, it sounds like Lighthizer thinks China mostly complied with the substantive obligations in the Phase One agreement, which is an intriguing position for a China hawk to take, as most people with that perspective say that China doesn't comply with its agreements. (With regard to the cause of China's compliance, I'm not sure that the Chinese actions here went beyond what it was already planning to do on most of these issues, but I'm happy to hear from any China experts out there on this point.)
Second, Lighthizer emphasizes that the Phase One agreement is enforceable, but this opinion is not widely shared (and it's definitely not my view). Without some kind of independent arbitration mechanism that can provide a neutral ruling on complaints, all the U.S. can do is threaten tariffs when it is upset about something, which is what it can already do -- and which it did -- under Section 301.
Third, Lighthizer says the most the important thing the agreement did was to keep the tariffs in place. But without the agreement, the tariffs would still have been in place, so I'm not sure the agreement adds anything here.
Obviously, it's natural for people to want to promote a positive version of their legacy, so we can't really expect anything else from a Kudlow-Lighthizer exchange on this issue. What will be interesting is to see the legacy that develops when we've had more time to reflect, and when some of the key players are no longer active in the field and more people feel comfortable expressing a view.
