Tariffs Are Not the Way to Beat China
America is stumbling into a trade war with China that just might undo most of the good that the Trump administration has done for other parts of our economic policy. Yes, China is a huge threat to the United States. I've been shouting this from the rooftops for the past five years, while the neo-conservative conventional wisdom held that China would collapse of its own weight. Yes, China is determined to overtake us in critical technologies. And yes, China plays dirty.
As it stands the Trump administration's China policy will lose us the war, and I hate it when that happens. With apologies to J.M. Barrie, the administration has drifted into Navarro-Navarro Land. If we want to stay ahead of China we have to revive American innovation.
The Russians did us a favor in 1957 when they put the Sputnik satellite into space. They like dramatic displays, and that got our undivided attention. The Eisenhower administration and later the Kennedy administration responded with a dramatically upgraded space program, massive funding for scientific education, and generous support for federal R&D. America created the digital revolution in technology and ultimately won the Cold War.
China wants to boil us like the proverbial frog, gradually gaining mastery of key technologies that will give it unquestioned leadership in the world economy of the 21st century.
Tariffs won't do much. The Trump administration appears to think that the threat of tariffs will scare the Chinese into giving up their technological ambitions. They won't. Tariffs will hurt us as much as they hurt the Chinese, and the Chinese are much better at taking pain than we are.
Let's do this by the numbers. Cell phones, computers, telecom equipment, accesses and toys make up more than half of China's exports to the U.S.. China imports a lot of components (including $220 billion a year of computer chips), puts them into finished products, and re-exports them. If we slap tariffs on cell phones or computers, will Foxconn assemble them in the U.S.? Not likely. Those aren't the kind of ill-paid, low-end jobs Americans want. Americans will just pay more for cell phones and computers.
China's single biggest import from the U.S. is aircraft. In a trade war, China will dump Boeing and buy from Airbus, and the French and Germans will cry all the way to the bank. They will buy cars from the Japanese or Europeans, and they will make their own semiconductors.
Of course, the Trump administration doesn't think that the application of tariffs will do much by itself. The point is to scare China -- but scare China into doing what?
China steals a lot of technology, but it also pays for a lot of technology. According to the World Bank, China pays more for intellectual property than any country in the world. Maybe it ought to pay double or triple what it's paying now. China will pay more or less whatever we ask it to. It will buy all the natural gas or soybeans we can sell it. The Chinese asked us in so many words, "Whom do we write the check to, and for how much?" They are gaining on us gradually and don't want to rock the boat.