Saying “We are being taken advantage of and I don’t like it,” President Trump has proposed new tariffs for all imported Chinese goods. This would be a mistake. Trump is right to worry about China’s illiberal and unfair trade practices, but retaliating against its state-directed economy with our own state direction of the economy is not the answer.
The Trump administration has already imposed tariffs on tens of billions of dollars of Chinese goods, but on Friday the president said he was “ready to go” with a massive increase.
What needs to be understood first is that import tariffs are not imposed on China, but on people in this country who buy the goods. These are taxes on you and me, because either some or all of the cost of those tariffs will be passed along to consumers. Half of all imports, such as on steel and aluminum, are used in manufacturing, so tariffs hike costs on manufacturers. That doesn’t create jobs. At best, it redistributes them, and at worst it kills them.
By making products more expensive, tariffs also make consumers poorer. If you pay more for one item, you have less to spend on another. Lower disposable income means less spending, and that means fewer jobs.
Trade warriors who say China cheats are right. China runs what is probably the largest corporate welfare machine in the history of world, given the size of its economy and Beijing’s willingness to pick winners and losers.
But the cheating is far more sophisticated than just propping up companies. China is taking steps to become the world leader in high-tech industries. It does this with state sponsorship at home and aggressive acquisition of foreign technology by fair means and foul.
A 200-page report produced by the U.S. Trade Representative’s office revealed that Chinese partners put pressure on American partners to hand over technology. These schemes are done through private channels without a paper trail, making it difficult for the U.S. to make a case against China at the World Trade Organization. Chinese companies often extort or otherwise grab foreign technology and then immediately make their own version and out-compete their one-time partners.
China gets foreign technology in some blatantly illegal ways. This year, Sinovel, a Chinese wind turbine maker, was found guilty of stealing trade secrets from AMSC, a U.S. company, after convincing an employee to hand over source code. This behavior is hardly surprising; Chinese firms have repeatedly violated intellectual property protections.
If Trump is serious about combating China, and he should be, there are several concrete steps he can take to do so without imposing tariffs on his own country and its consumers.
The administration could devote more resources to investigating Chinese investment in U.S. firms and whether the relationship is really to plunder our technology. This would help prepare for Chinese coercion and protect important technology that Chinese firms do not yet have, such as advanced microchips.
The U.S. should also revive and work toward more relationships like the Trans-Pacific Partnership. These agreements not only benefit the United States economically by encouraging free trade, but also serve as a bulwark against Chinese influence and the emergence of Chinese leadership in the Pacific. These agreements also allow the U.S. and its allies to put pressure on Beijing to play fair.
The U.S. also must exhibit global leadership. This strengthens our relationships with allies who will join in resisting Chinese economic abuses. It will also prevent Chinese dominance in organizations such as the WTO. If the U.S. turns inward and pulls out from alliances and international organizations where we once led, the more China gains in those areas. China is playing a long game, and at present has a realistic hope of coming to dominate the tech industry and set the rules. We should not let this happen.
To safeguard technology from theft, the U.S. must take cybersecurity seriously and invest in cyberdefense. While Trump was meeting Putin in Helsinki last week, Chinese hackers attacked Internet-connected devices in Finland. Russian cyberwarfare dominate the news, but Chinese attacks are probably more important in the long run.
China’s rise doesn’t have to come at the expense of American interests. The market is, to borrow a favorite Chinese Communist Party phrase, the real life “win-win cooperation.” The U.S. will be hurt if we punish our own industry with tariffs and retreat from the international stage, allowing China to set future rules of trade.
