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A Reciprocal Solution to the US-China Trade Dispute

The advanced economies are right that China needs to take steps to redress unfairness in its trade relations with other countries, not to mention its own economy. But if global trade is to be truly fair, the advanced economies – and, in particular, the US – also have to make some changes.

NEW YORK – For many allies of the United States, the flaws in President Donald Trump’s trade war with China – which is on hold for 90 days following the Xi-Trump meeting in Argentina – lay in the approach, not the motivation. Indeed, Europe and Japan share many of Trump’s grievances. What they fail to acknowledge is that there is also plenty they can do to make the global trading system – and their relationships with China – fairer and more efficient.

To be sure, China needs to take steps to reform its policies. For starters, China’s tariffs and non-tariff barriers are higher than those of the US and other high-income countries (though not higher that most developing countries with comparable income levels). And there are many restrictions on foreign firms wishing to operate in China, including limits on foreign ownership of domestic firms.

Reducing barriers to the Chinese market would benefit not only foreign producers, but also Chinese households and firms that use imported parts. Trade liberalization would function like a tax cut, raising income and improving efficiency without requiring the government to increase the budget deficit. China’s past trade liberalization, following its accession to the World Trade Organization 17 years ago, indicates that such a move would not lead to a spike in unemployment, as long as the Chinese labor market remains sufficiently flexible.

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