Transparency Will Go a Long Way To Patch Up U.S.-China Relations

Trade relations between China and the United States—the two largest economies in the world—are suffering from rising tensions and heightened geopolitical risk. Much of the uncertainty in the relationship derives from the erosion of something very simple: trust. With waning trust and rising suspicion, the United States should prioritize economic transparency, starting with clearer rules on the origins of goods through its trade agreements.

Trust, in large part, relies on transparency of information and intent. But there is nothing transparent about Chinese state-sponsored theft of American intellectual property, state surveillance of private industry, arbitrary and opaque enforcement of poorly conceived national security laws, and a reprioritization of the Chinese economy away from entrepreneurs and in favor of the Chinese Communist Party. America’s leaders and businesses fundamentally mistrust Chinese leadership because it is impossible to trust those who hide facts, data, and details behind opacity, propaganda, and misinformation.

China, for its part, seems to suspect that the United States is seeking to constrain it out of fear of a strong competitor. Beijing is spilling much ink and expending diplomatic energy proclaiming that the United States is trying to stoke a new cold war. But Chinese leaders appear far more disposed to a bipolar cold war mentality than anyone in America’s current government. The motley BRICS alliance, for instance, seems to exist mostly as a counterpoint to a Western worldview, rather than supporting genuine economic engagement.

The trust deficit, of course, would not matter if America had no power to influence its relationship with Beijing. But it does. Our market still matters to Beijing—and will matter even more if China’s deflationary environment puts further pressure on its export economy, forcing it to dump products on the United States and Europe.

The United States should take two steps right now to increase transparency in global trade.

First, Washington should pursue more trade agreements and revise existing agreements to emphasize more stringent and pragmatic “rules of origin.” Rules of origin, in trade parlance, are the means to determine where goods truly originate, irrespective of the location from which they were last shipped. So, before the United States accepts solar panels sent from Vietnam, it is crucial to know whether the panels are of Chinese origin but routed through Vietnam to avoid tariffs or national detection. Technological solutions, including digitized certificates, blockchain traceability, and DNA tracking, can help us make such determinations.

With China increasingly shifting its components or its manufacturing operations overseas to circumvent laws such as the Uyghur Forced Labor Prevention Act, new and revised trade agreements could be an opportunity to give greater teeth to rules of origin requirements—adding substantial trade transparency and preventing China from flouting restrictions aimed at curbing their abuses. Chinese companies are already moving operations to Mexico, seeking to exploit the U.S.-Mexico-Canada trade agreement. Just this month, Chinese car manufacturer BYD announced plans to establish new operations in Mexico to circumvent tariffs that were intended precisely to target companies like BYD.

Free trade, over the past few decades, has become politically unpopular as the limitations of naive globalism have been laid bare by countries like China and Russia, which have manipulated the rules of the global economy to further communist or kleptocratic interests. But free-trade agreements also have the unexploited potential to develop new shared rules and transparency guardrails.

Second, U.S. companies need to have greater visibility into their supply lines, from the mines to the market. Through decades of prosperity, global multinationals were not always compelled to ask questions about how their ingredients and components were sourced. The era of willful ignorance is ending. Shifting global laws and norms are pushing companies to mitigate the impacts of the entities from which they source—lending critical visibility into the web of previously obscure supply chains.

Some of this shift derives from global instability, as just-in-time supply lines were shaken during the COVID pandemic and subsequent geopolitical tensions. But, equally important, companies and consumers are themselves demanding more information about whether the products they buy are contributing to slavery, child labor, environmental harms, or unsafe working conditions.

This drive for greater transparency promotes a more ethical global economy, but is also a powerful tool for pushing back against Chinese efforts to promote opacity and secrecy—practices that the CCP has used to cover up forced labor in Xinjiang, Belt and Road Initiative corruption in Kenya, and a million COVID deaths at home. The more America and its allies demand supply chain and business transparency, the more the global economy will thrive at the expense of authoritarian-imposed secrecy.

We should not trust countries that hide their repressive and predatory practices from their people and the world—and we should not intertwine our economy with a country that is not trustworthy. For more than four decades, we gambled that economic integration with China would lead to an open, rules-based trading environment. If China wants to rebuild trust with its most important trading partner, it will need to pivot toward greater transparency and openness—and the rules to which it signed on many years ago.

America, by demanding greater transparency into rules of origin and supply chains, can help usher China into an uncomfortable but necessary economic dilemma: pivot towards transparency or become increasingly marginalized and mistrusted in lucrative Western markets.

Elaine Dezenski is senior director and head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies. Josh Birenbaum is deputy director of the Center on Economic and Financial Power at the Foundation for Defense of Democracies.