US Should Learn Lessons from ‘Totally Failed’ Tariff War against China
Published in Guangming Daily
(China) on 14 October 2022
by (link to original)
“The China tariffs have failed economically, politically and legally.” The Hill recently published an article acknowledging that the U.S. trade war with China is a total loss. In fact it was doomed from the start as proved by endless evidence that has been emerging for over four years.
In March 2018 the then-Trump administration initiated a trade war with China based on a so-called Section 301 investigation, imposing high tariffs on $360 billion of Chinese goods exported to the U.S. and claiming that, “Trade wars are good, and easy to win.” When the Biden administration took office in January 2021, it continued the previous administration’s tariff policy toward China. But the facts show that this tariff war, which has lasted for more than four years, is like shooting yourself in the foot. It hurts and it hurts badly.
Economic data is the most obvious illustration of this. Donald Trump originally said that the tariffs on China were to reduce the trade deficit, promote the return of manufacturing and increase jobs, and that the increased tariffs would be paid for by China. But research by Moody’s has shown that more than 90% of the cost of tariffs in the trade war with China have been borne by the U.S. side. Bloomberg has pointed out that the tariffs imposed on China have significantly increased costs for U.S. consumers and businesses and have failed to revive manufacturing in the U.S.
There is more. According to the U.S. Department of Commerce the U.S. goods trade deficit with China increased by 14.5% in 2021 to $355.3 billion, which is a new high since 2018. A related study showed that the trade war with China has resulted in U.S. companies losing $1.7 trillion in market value, cost nearly 250,000 jobs and added nearly $1,300 to the average annual spending of every household. As former U.S. ambassador to Singapore, David Adelman, has said, “Not only was there no negative impact on the Chinese economy, it [the trade war] had an impact on the U.S. economy. It has acted as a boomerang on the U.S. economy.”
At the same time, the political calculations of the U.S. have fallen short. Trump planned to use the “big stick” of tariffs to start a “strategic competition” with China and maintain U.S. dominance in politics, economy, the military and technology. As it turned out, this ploy did not work on China at all. For the past four years China has continued its development at a settled pace. It has worked to build a new development pattern where the domestic market is the main focus while the domestic and international economic cycles complement each other. Through this struggle, the dignity and core interests of the nation have been protected with the country taking the initiative to keep a firm grasp on its development and security.
U.S. actions are also questionable from the legal perspective. The U.S. levied tariffs against China under Section 301 of the Trade Act of 1974. The provision allows the Office of the U.S. Trade Representative to launch investigations against other countries and recommend to the U.S. president the use of unilateral sanctions. This has seriously undermined the multilateral basis of the World Trade Organization and has been condemned by the international community. Chad Bown, trade expert at the Peterson Institute for International Economics, criticized the U.S. use of Section 301 as a “rogue action.”
Without a doubt, the lesson that the U.S. has completely lost the tariff war against China is a profound one. But what lessons will be learned will test the wisdom of Washington politicians.
First, they must realize that using brute force against economic common sense and market rules will not work. The trade deficit between the U.S. and China is one example. This is the inevitable result of structural problems in the U.S. economy and is determined by the comparative advantages of the two countries and the international division of labor. In the first half of this year total trade value between China and the U.S. increased by 12.7% year-on-year, while U.S. investment in China increased by 26.1% in the same period. These show that mutual benefit is key to cooperation between the two countries and trying to change economic laws through administrative pressure is futile.
Second, letting so-called “political correctness” distort the policy toward China will not solve any problems. Currently, U.S. inflation has surged to a 40-year high. Under pressure, the Biden administration has repeatedly let it be known that it wants to cancel the tariffs on China, but this has been delayed. The Financial Times believes that Joe Biden does not want to appear “too soft on China” on tariffs before the midterm elections. If you dare not cancel the additional tariffs in order to appear “tough on China,” that is a shortsighted political calculation. It will harm the national interests of the U.S. and the well-being of its people.
Furthermore, more than four years of tariff wars against China have shown that bullying in international relations is a dead end. Some U.S. politicians have portrayed extreme pressure as “the art of the deal.” But it turns out that China is not like any other opponent they have pressured before and does not take kindly to threats and coercion. Moreover, China’s economy is like an ocean, entirely capable of weathering a storm and withstanding hazards. If the current U.S. administration thinks that it can do what the previous administration wanted and failed to do with a different tool, the facts will tell them that this is a bad decision and failure is inevitable.
More importantly, the U.S. side should consider China’s development in an appropriate way. In the past few years, whether it is advocating “strategic competition” or provoking a “full-scale confrontation,” it has shown that the U.S. perception of China has been very wrong. China has repeatedly made it clear that its development goal is not to overtake or replace the U.S but to constantly outperform itself so that its people can live a better life. China will not become another America, and the U.S. cannot change China according to its own likes or dislikes. Mutual respect, peaceful coexistence and “win-win” cooperation are the only proper ways for the two sides to get along.
Cooperation between China and the U.S. is mutually beneficial, while fighting harms both. This is a truth that has been proven time and time again. The Office of the U.S. Trade Representative is currently reviewing the tariffs imposed on China. No matter what decision the U.S. makes, China will still say the same thing: If we talk, the door is open; if we fight, we will see it through to the end. Hopefully the U.S. side will learn from its failures and correct its practices rather than compounding its error. History has proved and will continue to prove that building a high wall around a small yard simply traps you. Instead, opening the door can lead to a win-win future of cooperation.
In March 2018 the then-Trump administration initiated a trade war with China based on a so-called Section 301 investigation, imposing high tariffs on $360 billion of Chinese goods exported to the U.S. and claiming that, “Trade wars are good, and easy to win.” When the Biden administration took office in January 2021, it continued the previous administration’s tariff policy toward China. But the facts show that this tariff war, which has lasted for more than four years, is like shooting yourself in the foot. It hurts and it hurts badly.
Economic data is the most obvious illustration of this. Donald Trump originally said that the tariffs on China were to reduce the trade deficit, promote the return of manufacturing and increase jobs, and that the increased tariffs would be paid for by China. But research by Moody’s has shown that more than 90% of the cost of tariffs in the trade war with China have been borne by the U.S. side. Bloomberg has pointed out that the tariffs imposed on China have significantly increased costs for U.S. consumers and businesses and have failed to revive manufacturing in the U.S.
There is more. According to the U.S. Department of Commerce the U.S. goods trade deficit with China increased by 14.5% in 2021 to $355.3 billion, which is a new high since 2018. A related study showed that the trade war with China has resulted in U.S. companies losing $1.7 trillion in market value, cost nearly 250,000 jobs and added nearly $1,300 to the average annual spending of every household. As former U.S. ambassador to Singapore, David Adelman, has said, “Not only was there no negative impact on the Chinese economy, it [the trade war] had an impact on the U.S. economy. It has acted as a boomerang on the U.S. economy.”
At the same time, the political calculations of the U.S. have fallen short. Trump planned to use the “big stick” of tariffs to start a “strategic competition” with China and maintain U.S. dominance in politics, economy, the military and technology. As it turned out, this ploy did not work on China at all. For the past four years China has continued its development at a settled pace. It has worked to build a new development pattern where the domestic market is the main focus while the domestic and international economic cycles complement each other. Through this struggle, the dignity and core interests of the nation have been protected with the country taking the initiative to keep a firm grasp on its development and security.
U.S. actions are also questionable from the legal perspective. The U.S. levied tariffs against China under Section 301 of the Trade Act of 1974. The provision allows the Office of the U.S. Trade Representative to launch investigations against other countries and recommend to the U.S. president the use of unilateral sanctions. This has seriously undermined the multilateral basis of the World Trade Organization and has been condemned by the international community. Chad Bown, trade expert at the Peterson Institute for International Economics, criticized the U.S. use of Section 301 as a “rogue action.”
Without a doubt, the lesson that the U.S. has completely lost the tariff war against China is a profound one. But what lessons will be learned will test the wisdom of Washington politicians.
First, they must realize that using brute force against economic common sense and market rules will not work. The trade deficit between the U.S. and China is one example. This is the inevitable result of structural problems in the U.S. economy and is determined by the comparative advantages of the two countries and the international division of labor. In the first half of this year total trade value between China and the U.S. increased by 12.7% year-on-year, while U.S. investment in China increased by 26.1% in the same period. These show that mutual benefit is key to cooperation between the two countries and trying to change economic laws through administrative pressure is futile.
Second, letting so-called “political correctness” distort the policy toward China will not solve any problems. Currently, U.S. inflation has surged to a 40-year high. Under pressure, the Biden administration has repeatedly let it be known that it wants to cancel the tariffs on China, but this has been delayed. The Financial Times believes that Joe Biden does not want to appear “too soft on China” on tariffs before the midterm elections. If you dare not cancel the additional tariffs in order to appear “tough on China,” that is a shortsighted political calculation. It will harm the national interests of the U.S. and the well-being of its people.
Furthermore, more than four years of tariff wars against China have shown that bullying in international relations is a dead end. Some U.S. politicians have portrayed extreme pressure as “the art of the deal.” But it turns out that China is not like any other opponent they have pressured before and does not take kindly to threats and coercion. Moreover, China’s economy is like an ocean, entirely capable of weathering a storm and withstanding hazards. If the current U.S. administration thinks that it can do what the previous administration wanted and failed to do with a different tool, the facts will tell them that this is a bad decision and failure is inevitable.
More importantly, the U.S. side should consider China’s development in an appropriate way. In the past few years, whether it is advocating “strategic competition” or provoking a “full-scale confrontation,” it has shown that the U.S. perception of China has been very wrong. China has repeatedly made it clear that its development goal is not to overtake or replace the U.S but to constantly outperform itself so that its people can live a better life. China will not become another America, and the U.S. cannot change China according to its own likes or dislikes. Mutual respect, peaceful coexistence and “win-win” cooperation are the only proper ways for the two sides to get along.
Cooperation between China and the U.S. is mutually beneficial, while fighting harms both. This is a truth that has been proven time and time again. The Office of the U.S. Trade Representative is currently reviewing the tariffs imposed on China. No matter what decision the U.S. makes, China will still say the same thing: If we talk, the door is open; if we fight, we will see it through to the end. Hopefully the U.S. side will learn from its failures and correct its practices rather than compounding its error. History has proved and will continue to prove that building a high wall around a small yard simply traps you. Instead, opening the door can lead to a win-win future of cooperation.
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