From Project Syndicate, by Kenneth Rogoff – It’s hard to find an issue that unites America’s deeply divided political class as much as the need to limit China’s growing influence, whether through trade restrictions, tariffs on Chinese electric vehicles, or the ban on TikTok. While the national security case for such protectionist measures is undeniably compelling, it is unclear whether American political leaders and the public are prepared for the potential economic fallout.
The prevailing belief among policy makers is that the surge of Chinese imports into the US market during the 2000s depleted the US manufacturing base, enabling the kind of rapid military build-up that allowed the Allies to win the second world War. In American political circles is “Chinese shock” often described as a massive mistake that destroyed cities across ” rust belt »and led to a sharp increase in inequalities.
Therefore, politicians and commentators generally agree that the US must prevent a “China Shock 2.0” by imposing massive tariffs and trade restrictions on Chinese technologies such as mobile phones, drones and, above all, electric vehicles, solar panels and equipment related to green energy. President Joe Biden and his predecessor, Donald Trump, the presumptive Republican nominee in November’s presidential election, disagree on most issues. However, when it comes to dealing with China, both seem to be vying for the title of the most protectionist president in the United States.
However, the discourse on the China shock, which underlies current US trade policy, is deeply flawed. While competition with Chinese manufacturers has hurt some manufacturing jobs, free trade has arguably produced more winners than losers. In addition, low-income American consumers have been among the biggest beneficiaries of cheap Chinese imports. Policymakers who believe that abandoning trade with China will not lead to price increases or significant policy responses are in for a rude awakening.
The economic impact of US trade restrictions could certainly be minimized by diverting Chinese imports through third-country suppliers, which would allow Americans to buy solar panels made in China as if they were made in India, albeit at a higher price. But while this tariff theater may be popular with voters, it’s hard to see how it would improve national security any more than diverting Chinese fentanyl to the US via Mexico helped solve opioids.
Moreover, it would take years for countries to do so more welcoming » to develop their own production bases capable of competing with China’s, especially at the low prices offered by Chinese manufacturers. In certain sectors such as electric cars, China’s manufacturing capacity has given it an almost insurmountable lead over Western countries. In light of this reality, the United Auto Workers’ goal of getting Americans to buy electric cars produced in American factories with unions and good wages will be extremely difficult to achieve, whether or not Mr. Biden or Mr. Trump supports this goal.
A more targeted approach would ideally distinguish between trade in sensitive military technology and trade in other goods, but this distinction is more complicated than many seem to realize. The convergence of military and civilian technology became painfully clear during the war between Russia and Ukraine, where cheap drones originally designed to carry packages were repurposed as bombers and private mobile networks played a central role in major battles. Moreover, as the COVID-19 pandemic has shown, the United States and its allies depend on Chinese medical supplies.
For those of us who believe that multilateral cooperation is necessary to solve the planet’s most pressing problems, from climate change to the regulation of artificial intelligence, the escalating rivalry between the world’s two superpowers is deeply disturbing. From the US perspective, China’s authoritarian rule undermines the core liberal values that underpin the global economic and political order. China’s relentless cyberattacks continue to pose an immediate threat to the American economy and businesses, and a possible blockade or invasion of Taiwan by China would have far-reaching global consequences.
From China’s perspective, the United States and its allies are cynically trying to maintain a world order established by centuries of European and American imperialism. To the dismay of American diplomats, many other countries seem to share this sentiment, as evidenced by the widespread disregard of Western sanctions against Russia by emerging and developing economies.
Some may hope that China’s economic slowdown will dampen its geopolitical ambitions. But the current difficulties are as likely to push China toward confrontation with the United States as they are to promote cooperation.
Nevertheless, despite what many people in the United States may think, economic decoupling is not a sustainable option. Although the Biden administration’s trade restrictions and bellicose rhetoric are a response to Chinese provocations, both countries must find a way to compromise if they want to achieve stable, inclusive and sustainable economic growth.
Kenneth Rogoff, former chief economist at the International Monetary Fund, is professor of economics and public policy at Harvard University and winner of the 2011 Deutsche Bank Prize in Financial Economics. He is co-author (with Carmen M. Reinhart) of This Time is Different: Eight Centuries of Economic Folly (Princeton University Press, 2011) and author of The curse of cash (Princeton University Press, 2016).
Copyright: Project Syndicate, 2024.
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