Why free traders and all Americans should back Trump on China policy
I am a free trader and I hate tariffs, which are really consumer taxes, but if ever there were a right time to impose punitive tariffs on a trade partner, it is now against China. President Trump is on the side of the angels on this one, and this is the best moment to end abusive Chinese trade practices.
The average tariffs we imposed on China when Trump entered the White House were about 4 percent. Chinese tariffs on us were about 10 percent and, even when including the 10 percent tariff that Trump first imposed on $200 billion worth of Chinese imports in 2018, our tariffs were still lower than theirs. The playing field is not level and is tilted especially against us, given that nontariff barriers in China can make it prohibitively expensive to do business there. We have an open market and are competing against the second largest economy in the world whose doors are slammed shut.
Doctrinaire free traders should understand that this status quo is both economically and politically untenable going forward. Trade cannot be a one way street, and something has to give here. That means immediate reforms of mercantilist Chinese economic behavior on tariffs, on other trade barriers, on theft of intellectual property, and on cyber espionage against the United States. We are not dealing with a friendly power here but with an increasingly hostile one that has become an existential threat.
The strategy is to hit the vulnerable Chinese economy hard with tariffs and strong arm Beijing into giving American companies and products greater access to Chinese markets. There is not one demand that Trump is making of President Xi Jinping that is unreasonable. Free traders should recognize that if these tariffs work, and admittedly this is a dangerous game we are in, we will have greater free trade at the end of this battle.
The risk here is a ramped up trade war that makes everyone poorer, but this is a gamble worth taking for our country, as Trump is leveraging the strategic advantage the United States has over China today. China is an export based economy that has been nurtured on its nearly unfettered access to the multitrillion dollar American consumer market. By failing to negotiate in good faith, the Chinese are risking more than a half trillion dollars of annual sales and crashes in their economy and stock market.
Even the widespread complaint that the cost of these tariffs will be borne by American consumers may be exaggerated. The last round of tariffs at 10 percent had minimal impact on import prices, suggesting that Chinese companies absorbed the tariffs out of their profits rather than raising the prices on goods sold at Walmart and other retailers in the United States. This means the Chinese have swallowed much of the cost themselves.
The timing for this confrontation with China could hardly be shrewder. The American economy is flying high, along with the stock market, so we are in good shape to ride this out. Meanwhile, Beijing miscalculated big time in thumbing its nose at the demands made by Trump. The Chinese underestimated his resolve on this issue. I know that Trump will not back down on this, and China has only dug itself a deeper hole to climb out of.
Beijing also miscalculated the resolve of Americans and our increased antipathy toward China. I have observed a refreshing rally around the flag on this issue. Senator Charles Schumer tweeted in support of Trump on China, and this is indicative of the frustration that Americans feel about Chinese misbehavior, both economically and militarily. Other Democrats, including Senator Sherrod Brown, also support the tariffs. We have a rare bipartisan consensus that the United States needs to stand up to China.
What free traders should be doing, if they want to be constructive, is to help Trump pass the United States Mexico Canada Agreement, which would further undermine China and advance international trade. House Speaker Nancy Pelosi should do her patriotic duty by bringing the North America free trade deal into the 21st century. She should at the very least schedule an up or down vote on this landmark legislation in her chamber.
The trade dispute between the United States and China today is the first skirmish in what is likely to become the epic economic battle of our time. The future of free and fair trade is much better enhanced if Trump can claim victory. If China forces the United States to back down, free trade will suffer a mortal wound. This would be very bad news for free traders and for global prosperity. It is precisely why Trump will win this battle.
Stephen Moore was an economic adviser to the Donald Trump campaign. His latest book with Arthur Laffer is “Trumponomics: Inside the America First Plan to Revive Our Economy.” You can follow him @StephenMoore.
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