President Trump’s threatened new tariffs on imports from China cannot possibly work as the negotiating ploy he described in the recent tweets that announced them. Instead, they’re ushering in a New Normal in U.S. trade and broader economic policy and, secondarily, for much of the rest of the world economy.
The link with the trade talks — over any period of time — were clear from the president’s claim that “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” It’s encouraging that Mr. Trump now evidently realizes that the tariff truce he declared in March has failed, and that, as Senate Minority Leader Chuck Schumer of New York tweeted shortly after the president broke the news, “Strength is the only way to win with China.”
But it’s long past time that the president clarified, at least in his own mind, what “winning” entails. Specifically, Mr. Trump needs to stop feeding expectations that an agreement will meaningfully change China’s trade and broader economic predation, or even lastingly boost American exports to the People’s Republic. Instead, he needs to start signaling the beginning of a China policy defined not only by higher tariffs on its exports, but much lower two-way investment flows, as well as much lower levels of academic and other exchange programs.
This New (disengagement-focused) Normal seems inevitable however the current negotiations turn out. The evidence that mutually beneficial bilateral economic relations are an impossibility is now too overwhelming. And the national security threat posed by China’s intertwined subsidies and technology policies has long been too dangerous.
The new Trump tweets, however, have highlighted two other important reasons for maintaining a more stringent long-term trade regime. First, even if China agreed to overhaul its economy to America’s tastes, Beijing has been such a serial treaty violator that Washington would need to construct a massive monitoring and enforcement apparatus. Just as important, only Chinese compliance over many years could establish that the agreement was being respected and that wholly new policy priorities and business practices were actually taking hold.
Second, assurances of lasting tariffs are needed to create the policy clarity U.S. businesses understandably seek before approving the new investments needed to replace Chinese imports in the U.S. economy. Why would any executive commit to building a new factory, expanding an existing facility and hiring new workers if he had reason to believe that his Chinese competitors could be off the hook any minute?
Also crucial, staying the tariff course will boost the president’s chances both of achieving success whether U.S. allies (who are among China’s biggest trade partners) like it or not, and of the levies powerfully pushing these countries into taking similar anti-China positions. The reason? If export-dependent China can’t sell adequately to its massive American customer base, it will need to make up those sales someplace else to keep its own growth and employment levels satisfactory. Aside from any further domestic stimulus it OKs (which would further supercharge its already humongous debts) that means exporting more to other economies — whose own generally slow growth would force them either to buy Chinese products that replaced their own goods, or to shut their doors. So watch them turn “Europe-” and “Japan-First.”
Skeptical? Check out new world steel production patterns. The latest data (through March) from the World Steel Association showed that, over the last year, because the U.S. levies on steel ignored critics’ protests and hit nearly all countries, China’s steel output continued rising, but no longer at the U.S. industry’s expense. Instead, according to these statistics, China’s ongoing steel production and export glut was exacting its toll on most other major steel-making economies. Their substantially slower steel output growth indicates that they had begun replacing the United States as the global dumping ground of last resort.
If President Trump goes through with his threat to tariff all imports from China at 25 percent, other major countries will face the same prospect of Chinese export surges and growth slowdowns not just in steel, but throughout their industrial sectors. And they’ll consequently face an even greater need to block Chinese products.
Finally, Mr. Trump could make the greatest hay from the New China (tariff) Normal to use the elevated China tariffs to add an urgently needed, genuinely strategic dimension to the new trade agreement with Canada and Mexico. Trade with China has been such a great percentage of the U.S. total for so long that a major reduction in its levels inevitably will shake up American trade with the rest of the world, too. A new approach to China amid the ongoing effort to finalize the U.S.-Mexico-Canada (USMCA) trade deal is a golden opportunity to turn North America into what the authors of the original North American Free Trade Agreement (NAFTA) said they sought — establishment of a trade bloc in which the benefits of trade within the continent would flow almost entirely to the continent’s economies.
As a result, the United States and its immediate neighbors should all ratify some kind of interim deal quickly in order to eliminate the threat of needlessly excessive disruption in this immense commerce. Then they should all return to the bargaining table in order to agree on the tariffs on products from China and elsewhere outside North America needed to make this win-win-win vision a reality.
And the politics look promising, too. As the Schumer tweet suggests, the Democrats’ congressional leaders would be backed into a corner. Ditto for organized labor. The polls make clear that much of the Republican base would be in favor, along with the voters in the industrial Midwest who helped key Mr. Trump’s 2016 victory. And additional subsidies could keep in line the farmers who bet so heavily — and so recklessly — on an ever-expanding China market.
As a result, win-win-win wouldn’t adequately describe the results of the Trump trade initiative if the President follow through. It would be more like win-win-win and win in 2020.
• Alan Tonelson, founder of RealityChek, a public policy blog focusing on economics and national security, is the author of “The Race to the Bottom” (Westview Press, 2002).