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Begun, It Looks Like the US-China Trade War Has
It appears the war of words is over between the US and China. Or, more accurately, the conflict is moving beyond just words. The Wall Street Journal reports: “Beijing said it would retaliate immediately after the Trump administration announced Friday that it will impose tariffs on $50 billion of goods from China, raising the potential for a trade war between the world’s two biggest economies.”
So, escalation. But how does it end? Probably not with China tweaking its state capitalist economic model anytime soon. That would require, if anything, a sustained, multiyear effort where, for instance, Chinese firms benefiting from theft of American intellectual property would face severe sanctions. As my colleague Claude Barfield argues, “Should Beijing remain obdurate against market-opening reform, the US should progressively close off sectors to Chinese investment and operations in this country. Further, in a progressive ratcheting up, Chinese companies should be excluded from US capital markets, including stock exchange listings and the use of American underwriters for capital offerings.”
And this from AEI’s Derek Scissors: “With China effectively closing its market through protection of state-owned enterprises and coercive technology transfer, the US is not obligated by any reasonable standard to open our market fully to Chinese goods, services, capital, or people.”
Less promising are tariffs as leverage in pursuit of a deal. It’s unlikely the US could inflict enough pain that way to substantively change Beijing’s behavior ASAP, especially given that China views reaching tech parity and independence through industrial policy as an existential must. Also the losers in the US are likely to be those who can least afford it.
So what will President Trump accept as a win? How badly does he want a deal, any deal? Both the recent South Korea trade renegotiation and the North Korea talks show striking a deal to be important for the president. Trade deficits are a distraction, but Chinese concessions to reduce the bilateral trade imbalance would be one nudge toward a deal, given Trump’s lifetime focus on them. But that is probably insufficient. And I doubt hand-wavy Chinese promises on IP and forced tech transfer would satisfy the White House’s influential trade hawks, Peter Navarro and Robert Lighthizer, who’ve seen it all before. So maybe get ready for an economic cold war.
Yes, the Trump administration — and future administrations — must be prepared to play the long game against Beijing, which surely doubts the endurance of liberal democracies like ours, as I have written. But that’s not all. Punitive trade actions will not stop China from getting richer and progressing technologically. It is too big, smart, and entrepreneurial. While making sure it plays by global trading rules that respect market principles, the US needs to implement a pro-innovation agenda, including more federal science investment and increased high-skill immigration, to keep the economy at the technological frontier.
Published in Economics
There are many things I don’t like about China – their persecution of minority groups within their country, their buildup of artificial militaristic islands in the pacific (Where are our environmentalists crying out about destruction of reefs and atolls?), their theft of intellectual property . . . I could go on.
If I had my druthers, I’d fully invest in Taiwan, even to the point of establishing a naval base there and conducting joint military exercises with them. Put the screws to the butchers of Tiananmen Square, tell them we’d rather have our iPhones made by free people than slaves.
I have to stop here, because I have other things to do around the house.
Whoooopie…
The Dow is just loving it.
Not too bad…to be expected. Let’s see where it’s at a week from now.
The Dow has no soul. It’s strictly business, and I wouldn’t want it any other way.
Actually there are many times when it isn’t business…just lemmings running for the cliff or robot programs. Meanwhile housing starts reached an 11 year high in May. Sometimes the pundit reasons given for market rises and falls are so ridiculous it makes me want to scream. But that’s not to say we shouldn’t be concerned. Trade wars don’t often lead to good things. But we have been allowing China serial theft of our intellectual property for 40 years or more. They aren’t going to stop because we say pretty please with sugar on top. We are in a trade war. It’s just one that has been going on without any fight. Now we have a fighter. He is operating from a position of strength. But the American people have to be strong as well.
Nope, that’s business these days.
Hey China, if you don’t stop stealing our intellectual property, we’re going to tax our own people more!
Wait a minute. I thought we were at (trade) war with Canada this week.
Tariffs not only impose immense economic costs but also fail to achieve their primary policy aims and foster political dysfunction along the way.
Oy. Prosperity was nice while it lasted.
James, suddenly you bring up the question of what the US is “obligated” to do. This is a bit of a non-sequitur, isn’t it? I don’t think anyone is even discussing it.
In a sense … yes. We are penalizing ourselves for (in effect) buying stolen property.
Or are you arguing that it is OK to buy stolen flat screen TVs off the back of the hijacked truck as long as the price is low enough?
How does China steal our intellectual property? Do they just read the patents and duplicate them before expiration?
Why not just outlaw the importation of goods from China that were made using obvious intellectual property violations? At least that would make some rational sense. Yeah, it might be harder, but you’re unlikely to prevent the selling of TVs off a stolen truck by making the truck somewhat more expensive.
How does China steal intellectual property?
https://law.stanford.edu/2018/04/10/intellectual-property-china-china-stealing-american-ip/
The truck and the TVs should both be more expensive. Neither of which you want. The be-all and end-all of all these anti-trade sanction arguments is “its a tax on American consumers”. That’s just a palatable spin on “We want cheap stuff and care not how we get it”. Well, if American consumers are buying stolen property they should pay a penalty. If the current price is a Chinese-Government manipulated, artificially low price designed to bankrupt American competitors, then yes, there should be a tariff to return the actual price paid to something approximating what the free market price would be without the manipulation.
I wanted to buy an RCA television the other day. For some reason I kept coming up with Korean Sharp brand tv’s. Weird. So I thought, OK, I’ll just buy a Motorola instead…
Broadly applied tariffs, sure. But almost all Presidents in the last, oh . . . thirty some years have used punative tariffs at one point or another.
Besides, we used to fund the Federal government with tariffs, until the income tax amendment was passed.
Targeted tarrifs are far worse than low level broad based tarrifs for revenue purposses. The fact that previous presidents have used them is a mark against them, not an argument in favor for tarrifs.
This is actually a really interesting argument that I haven’t heard anyone make yet. Are any of the items under the tariff targeting things where theft has actually occurred?
Presidents are not using them for revenue generation. They are using them for highly specific purposes such as countering unfair trade practices, and only applying them to specific interests such as protecting a particular business (Harley-Davidson), or entire indutries such as steel.
Right, and I stand by the previous statement along those regards:
Tariffs not only impose immense economic costs but also fail to achieve their primary policy aims and foster political dysfunction along the way.