Unilateral tariffs on Chinese products just raise prices for American families and are unlikely to produce a real change in Chinese behavior.
As the White House continues its experiment with protectionism, it is worth noting that the $50 billion tariffs on imported Chinese products could serve a pro-market purpose, if properly targeted and managed. This is a big “if,” of course.
To the extent it is true that globalization has cost American jobs, it is due mostly to the rapid emergence of China as a manufacturing power, and to the fact that China has taken advantage of World Trade Organization (WTO) rules to access global markets, while keeping its own market closed. This neo-mercantilist policy, combined with China’s state-led development model, has flooded the global market with subsidized Chinese steel and other products.
These abuses of the WTO rules by China demand a response, and strong American leadership can and should play a central role. An actionable response would be:
- Use the tools of the WTO to call China out on its failures to make good on its commitments to curb subsidies and reduce barriers to foreign goods and services. In this effort, we would have many potential allies: the European Union, Japan, and Canada, to name a few.
- Give ourselves new tools to discipline Chinese behavior, by negotiating commitments with China’s neighbors and other major trading partners that would further limit the possibility of mischief through state-owned enterprises, currency manipulation, forced transfer of IPR, and interference in e-commerce and other services where the U.S. has a clear competitive advantage.
- Focus Chinese attention on the urgent need to address its free-ridership by levying tariffs on Chinese products targeted to hit Chinese leaders in the pocketbook.
A strategy like this would certainly succeed. After all, China is hardly a strong competitor of the United States. The George W. Bush Institute’s analysis of global competitiveness shows that China is nowhere near the U.S. by any measure: business environment, legal system, investment environment, macroeconomic stability, trade policy, even health, and education.
At the end of the day, China appears to be a redoubtable competitor only because it has a very large population. Our playbook of an open economy, driven by consumer choice, buttressed by broad capital markets and focused on innovation, quite frankly works better.
The strategy announced by President Trump in his inaugural address and carried out over the past year is different. In withdrawing from the Trans-Pacific Partnership (TPP), we relinquished the opportunity to form new rules that would have further projected our strengths. By calling into question the market opening of the North America Free Trade Agreement (NAFTA), we have added uncertainty and therefore cost to our own supply chains, hobbling our own global competitiveness. By levying global tariffs on steel and aluminum we have picked needless fights with our closest trading partners and weakened the coalition we will ultimately need to discipline China successfully.
In this context, our unilateral tariffs on Chinese products just raise prices for American families and are unlikely to produce a real change in Chinese behavior.
