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That Communist China is a bad actor has become about as close to a bipartisan consensus as Washington is capable of these days. Examples of China’s malign activities include placing ethnic Uyghurs in concentration camps, suppressing political freedom in Hong Kong, and building militarized islands in the South China Sea.[1]
To the extent that American policymakers are working to counter Communist China’s bid to replace the American-led liberal world order, they need to do so smartly -- especially when it comes to trade policy.
Unfortunately, many Republicans and Democrats seem hellbent on implementing unhelpful protectionist policies that weaken U.S. competitiveness on the world stage. The current U.S. trade policy consensus mixes reflexive hawkishness with wrongheaded protectionist assumptions. This toxic combination ends up hurting the United States more than China by weakening our economy and alienating allies and potential allies.
A smarter, more effective approach would be to adopt trade policies that strengthen the U.S. economy and bolster our international relationships. Here are four trade policies that the Biden administration and Congress should pursue:
End “national security” tariffs affecting U.S. manufacturers that import steel and aluminum from our allies.
In 2018, the United States instituted a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum.[2] The rationale for those tariffs -- “Chinese excess capacity” and “national security” -- has always been overstated, to say the least.
China is a relatively small player with respect to U.S. steel and aluminum imports. In 2017, just before steel and aluminum tariffs were first imposed, 88 percent of steel and aluminum imports originated from countries other than China.[3]
Furthermore, these “national security” tariffs and quotas do not even target U.S. adversaries, but instead affect nearly every U.S. friend, ally, and trading partner, with the notable exceptions of Australia, Canada, and Mexico.[4] As a result, the tariffs undermine U.S. national security. As Sen. Lindey Graham (R-SC) observed, “China wins when we fight with Europe.”[5]
In addition to alienating U.S. allies and potential allies, the tariffs harm American workers. For example, according to the Coalition of American Metal Manufacturers and Users, which represents over 30,000 companies and over one million American workers:
“The 232 tariffs on steel and aluminum should have never been applied to our allies in the first place. They have only served to increase the costs of goods manufactured in America compared to overseas competitors who can simply import the finished product to the U.S., and thus continue to erode the ability of the U.S. manufacturing sector to compete and survive in the global market. Record high prices, shortages and delays in delivery for steel and aluminum are rippling throughout downstream industries, disrupting supply chains and threatening the economic security of American workers.”
On June 15, the United States and the European Union (EU) announced plans to “engage in discussions to allow the resolution of existing differences on measures regarding steel and aluminum before the end of the year.”[6]
Instead of engaging in discussions, President Biden should end the tariffs effective immediately. If he refuses to do so, Congress should eliminate the tariffs, which were imposed without congressional approval in the first place. This would strengthen American manufacturers and make it easier to join with our allies to more effectively deal with China in a collaborative fashion, as opposed to continued reliance on unilateral actions like tariffs that tend to be ineffective and counterproductive.
Join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
In 2008, the United States joined negotiations to create the Trans Pacific Partnership (TPP) trade agreement between 12 countries. Ever since, bilateral support for U.S. membership in TPP has been strong, as indicated by the following statements:
GOP platform, 2012: “A Republican President will complete negotiations for a Trans-Pacific Partnership to open rapidly developing Asian markets to U.S. products.”[7]
President Barack Obama, 2016: “I’m a strong supporter of TPP because it will reduce tariffs -- taxes, basically -- on American goods, from cars to crops, and make it easier for Americans to export into the fastest-growing markets of the world. TPP levels the playing field for our workers and helps to ensure countries abide by strong labor and environmental rules.”[8]
Rep. Ron Kind (D-WI), 2017: The “decision to withdraw from the Trans-Pacific Partnership was a win for farmers, workers, and businesses … in China.”[9]
Twenty-six GOP Senators, 2018: “TPP can serve as a way to strengthen ties with our allies in the region, counter the influence of the People’s Republic of China (PRC), and increase pressure on the PRC to adopt substantive and positive economic reforms.”[10]
Sens. Tom Carper (D-DE) and John Cornyn (R-TX), chairman and ranking member of the Senate Finance Subcommittee on International Trade, Customs and Global Competitiveness, 2021: “Ideally, U.S. reengagement in the Asia-Pacific means negotiating a way to reenter the TPP, a move that would be a boon for job growth, increase U.S. regional influence and signal our willingness to once again act as a serious trading partner.”[11]
After the United States abandoned TPP, the remaining countries moved forward with a modified “Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).” Among other changes, CPTPP either weakened or entirely removed elements of TPP related to intellectual property rights and expropriation that progressives in the United States had initially opposed.[12] The resulting deal was similar to the U.S.-Mexico-Canada Agreement (USMCA) that passed the House of Representative by a vote of 385-41 and the Senate by 89-10.[13]
Our largest non-China trading partners, Canada and Mexico, are already CPTPP members, and the United Kingdom is in negotiations to join. The United States should follow suit.
In addition, the Biden administration should pursue other trade agreements that would strengthen the United States and help counter Communist China. For example, Rep. Byron Donalds (R-FL) has proposed a free trade agreement with sub-Saharan Africa, a region where China has been gaining influence.[14]
Modernize the Generalized System of Preferences (GSP) and the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) to encourage imports from countries other than China.
GSP allows for some products from low-income countries to enter the United States tariff-free. The program is supposed to help poor people in developing countries by promoting economic growth.
Unfortunately GSP has expired, and even before it lapsed more than 90 percent of the goods that Americans imported from GSP-eligible countries did not receive tariff-free treatment. Most significantly, GSP excludes shoes and clothing.
That’s a costly loophole. In 2019, the average U.S. import tax rate for shoe and clothing imports from GSP-eligible countries was 13.4 percent. Reducing that to zero would spur economic growth in developing countries, make clothing more affordable for families in the United States, and give companies a big incentive to produce in countries other than China -- currently the leading supplier of shoes and clothing for U.S. consumers.
According to Rep. Ron Estes (R-KS), “American workers are losing out on the jobs and benefits made possible through GSP since its expiration last year, but developing countries are also missing out on increased economic growth. Nothing lifts more people out of poverty than free and fair trade, and renewing GSP should be a top priority as our world recovers from the global pandemic.”
Along the same lines, the United States should modernize the CAFTA-DR trade agreement between the United States, El Salvador, Honduras, Nicaragua, Guatemala, the Dominican Republic, and Costa Rica. Under this agreement, most goods could enter the United States tariff-free based on whether there is a tariff shift -- for example, if a company imports raw materials and transforms them into an entirely different product -- or if a specified percentage of a product’s value originates in a CAFTA-DR country.[15]
But a special rule requires that clothing must be entirely made with yarn and fabric produced within the region to qualify, even though commercial quantities of materials used in the clothes that Americans wear every day are largely produced in other countries.[16] This obsolete rule holds the entire region hostage to a handful of suppliers, making it incredibly challenging for companies to create supply chains that would allow them to produce clothing and create jobs in CAFTA-DR countries instead of in China.
CAFTA-DR could also be improved in other ways -- for example, by linking it with other U.S. trade agreements in the hemisphere, starting with USMCA and including Chile, Colombia, and Peru.
End Section 301 tariffs that weaken supply chain resilience and devitalize American manufacturing.
Tariffs imposed on Americans under Section 301 of the Trade Act of 1974 weaken supply chain resilience and devitalize U.S. manufacturing. This should come as no surprise to policymakers. When Section 301 tariffs on China were proposed, U.S. manufacturers lined up in opposition.
According to the National Electrical Manufacturers Association: “In conclusion, the imprecision of broad-based tariffs – such as those proposed – is accompanied by collateral damage up and down global supply chains that is better avoided.”[17]
According to the Motor Equipment Manufacturers Association: “Please understand, the cost of these tariffs won’t just impact companies, but ultimately U.S. consumers and our country. The price will be loss of current jobs, constrained access to materials and parts, and curtailed future U.S. investments by vehicle suppliers.”[18]
According to the American Chemistry Council: “However, punitive tariffs against China are not the solution. Neither the threat of tariffs nor their application will change China's mercantilist behavior…. These duties, if applied, would cause disproportionate economic harm to U.S. interests including SMEs [small and medium enterprises] and consumers.”[19]
According to the Semiconductor Industry Association, “U.S. chipmakers have borne the brunt of the $750 million in duties paid on chip imports since July 2018…. While tariffs arguably helped bring China to the negotiating table for a broader trade deal, tariffs on semiconductors fail to incentivize domestic chip production and will only serve to further erode America’s manufacturing base and technological leadership.[20]
These pleas largely fell on deaf ears. The resulting escalation of U.S. tariffs followed by retaliation from China led to a mounting volume of economic studies documenting the impact on Americans. According to one, “...the U.S.-China trade war lowered the market capitalization of U.S. listed firms by $1.7 trillion.”[21] Another concluded that Americans are bearing nearly 93 percent of the cost of U.S. tariffs.[22]
Like most other unilateral U.S. trade actions, the tariffs on Americans who import goods from China have been costly and ineffective.[23] After the U.S. imposed tariffs, China retaliated with tariffs on U.S. exports and took over Hong Kong, and the country’s leaders have continued to build “a dystopian hellscape on a staggering scale in the Xinjiang Uyghur Autonomous Region.”
These four policies have one thing in common. They are not currently part of China-focused legislation being considered by Congress.
Specifically, the United States Innovation and Competition Act of 2021, which mentions China 666 times:[24]
- Does not include an extension of Trade Promotion Authority that would make it easier for the United States to boost our influence in Asia by joining the CPTPP.
- Does not expand GSP to promote imports from countries other than China. Although the bill would renew GSP, it actually proposes to make it harder for countries to receive GSP benefits.
- Does not remove tariffs on steel and aluminum imports from U.S. allies who we will need to collaborate with in the future.
- Does not remove U.S. tariffs on American businesses that import goods from China and that disrupt supply chains for semiconductors and other manufacturers.
Instead of providing these or other real solutions to help the United States deal with China, the bill largely appears to be an excuse for increased deficit spending at the expense of national security. According to Sen. Rand Paul (R-KY), “The bill is nothing more than a big government response that will make our country weaker.”[25] The House of Representative Republican Study Committee criticized the bill for, among other reasons, “adopting Communist China’s industrial strategy” and “piling on the debt.”[26]
Conclusion
At the dawn of the Cold War, American diplomat George Kennan sent his famous “Long Telegram” outlining how the US should prosecute the Cold War. His conclusion remains prescient today vis-a vis Communist China:
Finally we must have courage and self-confidence to cling to our own methods and conceptions of human society. After all, the greatest danger that can befall us in coping with this problem of Soviet communism, is that we shall allow ourselves to become like those with whom we are coping.[27]
We should have learned our lesson during the 1980s and 1990s, when some experts suggested the United States was about to be overtaken by Japan, Inc.[28] Fortunately, policymakers resisted pressure to emulate Japan’s industrial planning. Instead, the United States led efforts to reduce barriers to mutually beneficial international trade and investment -- and today, headline-grabbing fears about Japan buying up America have been relegated to history as a “tired scare-story.”[29]
America can win what the historian Niall Ferguson is calling “Cold War II” if and only if we hold firm to the twin pillars serving as the foundation of our strength: political and economic freedom.[30] Now is not the time to become more like the communists with state-directed economic policy.
By adopting these four commonsense trade policies, Congress and the Biden administration would not only make our economy stronger, but also reaffirm America’s commitment to freedom and openness, creating a sharp contrast for the whole world to see between the freedom of America and the tyranny of China’s current leadership.
[1] Ramsey, Austin, and Chris Buckley. “‘Absolutely No Mercy’: Leaked Files Expose How China Organized Mass Detentions of Muslims.” The New York Times, November 16, 2019; Illmer, Andreas. “China is 'trampling on Hong Kong's democracy.'” BBC, April 4, 2021; “South China Sea: What's China's plan for its 'Great Wall of Sand'?” BBC, July 14, 2020.
[2] “Section 232 Investigations: Overview and Issues for Congress.” Congressional Research Service, May 18, 2021.
[3] Tariff data from United States International Trade Commission Dataweb for Harmonized Tariff Schedule numbers 720610 through 721650, 721699 through 730110, 730210, 730240 through 730290, 730410 through 730690, 7601, 7604 through 7609, 7616.99.51.60, and 7616.99.51.70.
[4] “Section 232 Investigations: Overview and Issues for Congress.” Congressional Research Service, May 18, 2021.
[5] Byrd, Caitlin. “Lindsey Graham to Donald Trump: ‘You’re making a huge mistake’ on tariffs.” Charleston Post and Courier, March 4, 2018; updated September 14, 2020.
[6] “U.S.-EU Summit Statement.” The White House, June 15, 2021.
[7] “2012 Republican Party Platform.” The American Presidency Project, UC Santa Barbara, August 27, 2012.
[8] “Remarks by President Obama and Prime Minister Lee of Singapore in Joint Press Conference.” The White House, August 2, 2016.
[9] Cutler, Wendy. “Reengaging the Asia-Pacific on Trade: A TPP Roadmap for the Next U.S. Administration. The Asia Society, September 2020.
[10] “Senators Urge President To Re-Engage In TPP.” Office of Sen. Chuck Grassley (R-IA), February 20, 2018.
[11] Carper, Tom and Cornyn, John. “The U.S. needs to learn from its TPP mistake — and get its seat back at the table.” The Washington Post, June 13, 2021.
[12] Goodman, Matthew P. “From TPP to CPTPP.” Center for Strategic and International Studies, March 8, 2018.
[13] United States-Mexico-Canada Agreement Implementation Act, H.R. 5430, 116th Cong. (2019). https://www.congress.gov/bill/116th-congress/house-bill/5430/all-info#allActions-content
[14] Sun, Yun. “Chinese Campaigns for Political Influence in Africa: Testimony before the U.S.-China Economic and Security Review Commission.” The Stimson Center, May 13, 2020.
[15] “U.S.-CAFTA-DR Free Trade Agreement: Rules of Origin.” International Trade Administration, Updated November 13, 2009.
[16] “Textiles in the CAFTA-DR.” Office of the U.S. Trade Representative, July 2007.
[17] Pitsor, Kyle. “Section 301 Tariffs Public Hearing.” Office of the U.S. Trade Representative, May 16, 2018. Retrieved from: https://ustr.gov/sites/default/files/enforcement/301Investigations/Hearing%20Transcript%20Proposed%20Tariffs%2C%20Day%202.pdf
[18] Wilson, Ann. “Section 301 Tariffs Public Hearing.” Motor & Equipment Manufacturers Association, , May 16, 2018. Retrieved from: https://ustr.gov/sites/default/files/enforcement/301Investigations/Hearing%20Transcript%20Proposed%20Tariffs%2C%20Day%202.pdf
[19] Brzytwa, Ed. Section 301 Tariffs Public Hearing.” American Chemistry Council, May 15, 2018. Retrieved from: https://ustr.gov/sites/default/files/enforcement/301Investigations/Hearing%20Transcript%20Proposed%20Tariffs%2C%20Day%202.pdf
[20] Semiconductor Industry Association. “Growth-Based Incentives, Not Tariffs, Will Strengthen U.S. Chip Manufacturing and Leadership.” July 2, 2020.
[21] Amiti, Mary, Sang Hoon Kong, and David E. Weinstein. “The Investment Cost of the U.S.-China Trade War.” Federal Reserve Bank of New York, May 28, 2020.
[22] Boehm, Eric. “China Is Paying Less Than 8 Percent of Tariff Costs. Americans Are Paying the Rest.” Reason, May 24, 2021.
[23] Powell, Jim, “Why Trade Retaliation Closes Markets and Impoverishes People.” Cato Institute, November 20, 1990.
[24] “United States Innovation and Competition Act of 2021,” S.1260. Library of Congress/Congress.gov.
[25] Freking, Kevin. “Senate passes bill to boost US tech industry, counter rivals.” Associated Press, June 8, 2021.
[26] “The Endless Frontier Act: Big Spending, Little Results.” House Republican Study Committee Memorandum, May 2021.
[27] “February 22, 1946: George Kennan's 'Long Telegram.'” History and Public Policy Program Digital
Archive, National Archives and Records Administration, Department of State Records (Record Group
59), Central Decimal File, 1945-1949, 861.00/2-2246; reprinted in U.S. Department of State, ed.,
Foreign Relations of the United States, 1946, Volume VI, Eastern Europe; The Soviet Union
(Washington, DC: United States Government Printing Office, 1969), 696-709.
[28] Thierer, Adam. “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse.” Discourse, June 28, 2021.
[29] Flower, Joe. “The Americanization of Sony.” Wired, June 1, 1994.
[30] Ferguson, Niall. “Cold War II.” The Boston Globe, March 11, 2019.