New U.S.-China Trade Negotiations Can Be A Win-Win

Forbes

23-05-2025

Treasury Secretary Scott Bessent indicated today that The United States Government 'expects the U.S. and China to continue in-person trade negotiations soon.' This will give the U.S. the opportunity to push for the roll-back of Chinese anticompetitive market distortions that distort markets and harm the competitiveness of America's innovative industries. The successful dismantling of distortions could be a 'win-win' for both the American and Chinese economies.
Background on Anticompetitive Market Distortions
As a 2023 U.S. Trade Representative Report to Congress spotlights China's harmful non-compliance with its World Trade Organization treaty obligations:
'[T]he Chinese government and the CCP routinely intervene in the market using a wide array of non-market policies and practices, both to provide artificial competitive advantages to Chinese industries and enterprises and to actively disadvantage foreign industries, enterprises and workers.' As a result, the competitive 'playing field is simply not level. It is heavily skewed against foreign enterprises wherever they seek to compete against Chinese enterprises, whether it is in China's market or in other markets around the world.'
These are quintessential 'anticompetitive market distortions,' or ACMDs — behind-the-border government-imposed discriminatory restrictions. ACMDs largely fall outside the scope of existing national trade laws (which address at-the-border tariffs and quotas) and antitrust laws (which generally do not cover government regulatory restrictions).
ACMDs include, for example, measures that: lessen or entirely eliminate competition among firms; create special regulatory exemptions or barriers to entering a market; involve selective prosecution or non-enforcement of key laws (such as antitrust or patent laws); and provide government financial assistance to favored recipients.
While many nations engage in some ACMDs, China is widely viewed as by far the worst offender.
Tackling ACMDs Through Trade Negotiations
One way to address ACMDs might be through a multilateral agreement among the U.S. and other 'Chinese trade victim' nations to jointly impose sanctions on China in the form, say, of tariffs or import bans.
Pulling together such a coalition, though, could be hard. Many countries may be reluctant to join, for fear of disrupting well-established trade ties. Moreover, some joining nations may not follow through on import limitation commitments.
The U.S. needs to be the first mover in directly confronting the China ACMD problem, and it may have the means to act effectively.
China's dependence on exports to the American market could well give the U.S. special leverage in bilateral trade talks. According to Dr. Danel Lacalle, chief economist at the hedge fund Tressis:
'China has learnt that it cannot endure a trade war and cannot substitute the US consumer, the richest and largest market, with European or Latin American consumers. Therefore, it needs a trade deal quickly before the domino of bankruptcies that has plagued the Chinese economy since 2021 erupts into a full-blown financial crisis.'
The U.S. already has taken initial steps to apply this leverage, with some success.
The U.S. on May 12 announced an agreement with China to reduce China's tariffs and eliminate retaliation, retain a U.S. baseline tariff on China, and set a path for future discussions to open market access for American exports. The U.S. and China each agreed to lower tariffs by 115% while retaining an additional 10% tariff, during a 90-day period, to allow for negotiations.
U.S. negotiators, led by Treasury Secretary Bessent, can turn to the March 2025 USTR Trade Barriers Report which catalogues foreign countries' trade restrictions. A full 48 pages are devoted to China, including a detailed description of numerous ACMDs.
Leading trade economist and lawyer Shanker Singham and colleagues have developed an economic model to calibrate the monetary costs of ACMDs in terms of reduced economic welfare. The model as applied to individual nations demonstrates that while ACMDs harm trading partners by affecting export and import levels, 'the damage of the ACMD is primarily to the country that is distorting its market.' This damage is reflected in the form of reduced per capita Gross Domestic Product. GDP losses due to ACMDs dwarf those attributable to tariffs and other at-the-border trade measures.
Thus, in calling for China to pare back if not totally dismantle its ACMDs, American negotiators can credibly explain that this will actually benefit the Chinese economy.
In negotiations, the U.S. can also explain that it practices what it preaches.
In April 2025, President Trump issued an executive order requiring his administration to identify and (to the extent legally possible) eliminate anticompetitive federal regulations (in effect, ACMDs). This review was launched in an April 2025 presidential executive order. As I recently pointed out, the order 'provide[s]
Let the Negotiations Begin
New research and thinking about ACMDs provides a unique possibility to frame U.S.-China trade negotiations as a 'win-win' for both nations' economies.
The President's recent commitment to rooting out American ACMDs should further strengthen American negotiators' ability to underscore the mutual benefits of reducing these distortive burdens on the American and Chinese economies.
Negotiations to achieve specific Chinese ACMD commitments no doubt will be hard. Chinese dedication to a mercantilist export-driven economic model will not be easy to overcome. Implementation of any agreement also, of course, will have to be closely monitored. What's more, the benefits of any agreement may take a while to be realized.
Nevertheless, there is finally some reason to hope that U.S.-Chinese trade talks may yield tangible positive results. That would be a very good outcome for both countries and for the global economy.