Instead of Fighting with China with Tariffs, US Should Revitalize Its Own Industries

For some years, the International Monetary Fund has repeatedly warned that the trade war between China and the U.S. will have long-term negative effects on both countries. Because each side has continually imposed tariffs on the other increasing barriers to trade, trade itself has not only been damaged, but investment and manufacturing industries have also been harmed. Recently, IMF Managing Director Kristalina Georgieva said that the “most worrying” growing threat faced by the global economy is the trade restrictions, such as tariffs, that the three largest economies (America, China and the European Union) are imposing.

At the recent G7 Summit, Treasury Secretary Janet Yellen pointed out that all countries should take action against China and not accept China’s “excess capacity” problem, particularly when it comes to the “three new industries” in renewable energy: electric vehicles, lithium-ion batteries and solar cells. The U.S. believes that China has created an unfair competitive environment by using state subsidies and will dump overproduced goods into the U.S., hurting America’s domestic workers and industries. In response, the U.S. will adopt all necessary measures, including tariffs and sanctions. It recently announced that, starting Aug. 1, it will raise tariffs by 100% on electric vehicles imported from China, making their prices in the U.S. prohibitive to consumers and thereby protecting the domestic electric vehicle industry.

Exporting is, in fact, selling excess goods produced domestically to other countries. This is a normal phenomenon in the global market economy, seen in products such as automobiles from Germany, wine from France and Apple iPhones from the U.S. As for so-called state subsidies, every country has them. For example, in 2022, America’s Inflation Reduction Act invested $369 billion in the response to climate change, focusing on developing clean energy industries such as electric vehicles and solar power. The act targets new vehicles assembled in North America, for which consumers can obtain up to $7,500 in subsidies. It also caused some trade friction with the European Union. Therefore, it is far-fetched to use excess capacity and subsidies to justify attacks and sanctions.

The real question is not China’s excess capacity, but rather the decline of America’s own manufacturing industry, which lacks competitiveness and cannot produce goods that have an advantage in the international market. This is why the U.S. aims to use political means to force other countries to restrain themselves and get out of the way. American economist Stephen Roach, the former chair of Morgan Stanley Asia, said “the United States exaggerates China’s excess capacity and should instead feel ashamed of its own lacking production capacity.”*

Currently, the U.S. has imposed high tariffs on electric vehicles manufactured in China. While this may have a deterrent effect in the short run, it will only make matters worse in the middle and long run. Not only will Americans be unable to buy the goods they need at a reasonable price, but automobile manufacturers will grow increasingly less competitive as they hide behind tariffs. Even Tesla’s founder, Elon Musk, has publicly expressed disapproval over the Joe Biden administration’s tariffs on China’s electric vehicles because they distort the market. In actuality, the high tariffs imposed by the U.S. cannot really weaken China’s position as an international electric vehicle leader, because, for China, the American market is just one of many. China’s inexpensive electric vehicles remain popular in other regions and account for 67% of the global market share.

The predicament the U.S. must really face is the state of its own industries. Even if it can suppress China, that doesn’t mean its own situation has improved. However, reshaping the manufacturing industry in America’s current situation is not easy. In particular, regarding the quality of labor and attitudes about work, the U.S. has much room for improvement compared with Taiwan, China and even other Asian countries such as Japan and Korea.

For example, the Taiwan Semiconductor Manufacturing Company built a factory in Arizona. While the hardware can be replicated, the high quality of human resources and labor are lacking, so the unit price for manufacturing the same chips is 50% higher than in Taiwan. Thus, a top priority for the U.S. government is determining how to practically and thoroughly improve America’s manufacturing environment, train workers and become stronger.

At the same time, the U.S. should also humbly admit that other countries are quite successful at the strategic development and policy planning of some industries. If the U.S. can learn from the successes of such countries, it can combine this knowledge with its original economic strength and technological and financial advantages to produce better results. Still, this depends on whether those in power have this wisdom and vision.

*Editor’s Note: This quote, though accurately translated, could not be independently verified.