At its heart, then, the trade dispute is about far more than tariffs and deficits. It is a contest of two very different national ideologies. Though the Trump administration has deviated from this somewhat, the United States believes that openness—political, economic, and social—creates prosperity, resolves disagreements within society, and promotes the diversity that spawns innovation and progress. China—or, more accurately, its leadership—sees government control as critical to developing the economy, achieving social peace, and forwarding the best interests of the nation overall. Americans tend to think open, free markets that are operating in a fair regulatory environment produce the best economic results. Beijing, on the other hand, doesn’t trust market forces and instead wants the state to play a more direct role in achieving the economic outcomes it determines are necessary for the country.
The Trump administration is, rightfully, demanding a slew of reforms to Chinese practices it considers “unfair.” Washington wants Beijing to cut back on the subsidies and other financial support it lavishes on favored industries, to stop compelling U.S. firms to disgorge their commercial secrets, and to widen access to China’s lucrative home market for foreign companies.
But what is “unfair” in American eyes is simply a matter of daily business in China. Sure, China’s spectacular ascent was sparked by capitalist reforms that opened the economy to private enterprise and international trade and investment. Its economic system, which its leaders call “socialism with Chinese characteristics,” relies on a much heavier role for the state than any true capitalist could stomach, though. Large swaths of the economy remain well under the thumb of meddlesome state planners and bureaucrats, and their web of permits and restrictions. Many of the country’s critical industries, from automobiles to banking to microchips, are to a great degree in the grasp of state-owned enterprises or heavily supported by state aid, or both.
As a result, what Trump is demanding is extremely difficult to achieve: a “level playing field” for American firms. In fact, nothing of the sort actually exists in China, even for Chinese companies. The state has a nasty tendency to favor its own, with government-controlled businesses enjoying a smorgasbord of official assistance, including tax credits, low-interest loans from state banks, and other subsidies that give them an undue edge in local competition. That leaves private Chinese companies and entrepreneurs often facing the same kinds of hurdles to doing business that foreign ones face.
Zhang Chunlin, a specialist at the World Bank, recently argued that Beijing should adopt the principle of “competitive neutrality” for Chinese state and private companies. Doing so, he wrote, could require “separating government from the enterprise” and ensuring that regulations are applied evenly to all companies, no matter who the shareholders might be.