US Treasury Secretary Steve Mnuchin, Commerce Secretary Wilbur Ross and China's Vice Premier Wang Yang at the US - China Comprehensive Economic Dialogue in July. Photot Reuters/Yuri Gripas
US Treasury Secretary Steve Mnuchin, Commerce Secretary Wilbur Ross and China's Vice Premier Wang Yang at the US - China Comprehensive Economic Dialogue in July. Photot Reuters/Yuri Gripas

Widespread celebration among opponents of former White House chief strategist Steve Bannon’s economic and foreign policy following his departure last week, was not unwarrented. But the absence of Bannon’s trade war threats in the short-term may not stop the momentum building in Washington for challenges down the road.

Josh Rogin at the Washington Post speculated that his removal from the picture could be a “boon for the status quo – and a relief to the Chinese government.”

At first glance, considering who Bannon’s White House opponents on China policy are, that analysis makes sense. Jared Kushner, who Chinese media confirmed (link in Chinese) last week will along with Ivanka Trump be wined and dined by Xi Jinping and Peng Liyuan next month, has been taking cues from Henry Kissinger. That would bode well for those hoping to maintain the status quo.

But despite the friendly relationship China continues to cultivate with the young China novice, many career US government trade and military officials, not to mention remaining Trump appointees, have been waiting for years to take a tougher approach to China. Without Bannon, a shift in China policy may take on a less reckless tone, and for that reason may face less opposition inside the US.

Former chief judge of the World Trade Organization’s Appellate Body, James Bacchus, writes in the Wall Street Journal that unilateral action to challenge China on trade, such as the one currently being considered through the Section 301 investigation launched last week, is the wrong approach. But, summing up what is largely a consensus view across party lines within the US government, he explains that the US has a legitimate argument to push back on China trade.

That Bacchus’ argument is a widely held view in Washington, and overlaps with Trump’s campaign promises, means that the departure of the controversial and inexperienced Bannon may actually pave the way for more substantive action against China, in contrast to the bombastic and ineffective trade war rhetoric of Bannon.

The below isn’t coming from Steve Bannon or Peter Navarro, it is coming from Mr Bacchus, a former WTO official and Democratic lawmaker whose views are not outside the mainstream of China policy thinking in Washington:

Intellectual property accounts for nearly 40% of the U.S. economy, and the US government has a duty to protect American rights holders abroad. The annual cost to US companies of pirated software, counterfeit goods, and the theft of trade secrets is as much as $600 billion. Most of these losses occur in China.

After 16 years in the WTO, China still falls far short of fulfilling its obligations to protect intellectual property rights. About 70% of the software in use in China, for example, is pirated.

Beijing’s mercantilist industrial policy, the Made in China 2025 program, aspires to make China a global leader in 10 strategic industries, including medical devices, artificial intelligence, driverless cars, and robotics. It requires that the domestic content of manufactured products be increased to 70%, state subsidies be granted, and companies in these targeted industries be protected from foreign competition.

If Bannon’s departure means Jared Kushner will take the reigns to drive China policy, then the world can get ready for some smooth sailing. If it means that the Washington establishment will have more influence, there are sure to be rough waters ahead.

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