Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
The liberal trade world that was built after World War II is on the verge of collapse. And the only politician who can save it is Donald Trump. And the only way to save it is to win the trade war with China.
Donald Trump was elected president in part because he recognized the bankruptcy of US trade policy and promised to do something about it. As negotiations with China enter a difficult and vital phase, America is very lucky to have a president with the gumption and determination to see this fight through. The trade war with China is one that the US must, can, and will win. And when it comes to the tariffs proposed so far, the US has not yet begun to fight. China should change course, stop reneging on its negotiated promises, and become a normal capitalist nation. But if China prefers to remain mercantilist, totalitarian, autocratic, illiberal, and despotic, the US must treat it as it deserves -- to a healthy course of isolation, disinvestment, and containment.
For decades the United States has been played for a sucker by China's totalitarian masters. For example, Bill Clinton unwisely let China into the WTO, naively believing that China would democratize. Instead, China's oligarchy has returned to autocracy, its private enterprises are increasingly coerced by its state-owned enterprises. Its trade policies have been consistently and in diverse ways predatory. Perhaps it was poetic justice that Bill Clinton's ill advised admission of China to the WTO contributed to Hillary Clinton's defeat in the 2016 election.
The admission of China to the WTO initiated long-lasting negative consequences across many parts of the United States and many regions of the US economy. Innovation, marriage, health, and welfare suffered as a result of the China shock. China leverages all available means to achieve its mercanitlist ends -- from manipulation of its currency, to forced technology transfer, to outright theft. By 2013 many millions more workers were employed in manufacturing in China than across the entire western world.
The massive trade surpluses accumulated by China with the United States across several decades have reflected and catalyzed the massive transfer of technological and manufacturing capacity from the free world to China's censored, repressed, firewalled, and very much un-free world.
And China's totalitarian model of mercantilist development has undermined US political and economic standing around the globe as leaders with authoritarian tendencies have turned towards China's 'model.' Global human freedom is in decline. In his naivete Bill Clinton boasted that China's repression could never withstand a force so massive as the internet. Today China is exporting its "great firewall" technology to leaders in other countries who feel threatened by freedom.
Which brings us to Trump and his options.
Trump could of course take the Biden-Bush-Clinton-Obama option and accept fig-leaf promises of change from China while allowing China to continue its depredations. Far too many who pretend allegiance to the banner of "free trade" would have him do just that. But over the last three decades this policy has brought us to the current fix. Free trade with China is like "free trade" with the thief who stole your car. Keep buying it back from him whilst doing nothing to punish the theft and you will keep getting poorer while confirming the thief in the view that you are an easy mark. When we buy back our stolen technology, produced in our coerced-away factories through the labor of a nation held in bondage by its corrupt communist rulers we are doing little else. Continuing on this disastrous course will lead to the destruction of the global liberal order including the free trade that so-called defenders claim to cherish. Indeed, it already is.
If the current negotiations truly succeed in changing China's behavior, then this could be an excellent outcome. Perhaps China might yet reverse its path. A constructive China ruled by its people rather than its commissars and engaged in free trade would be a wonderful thing for both China's oppressed citizens and the world.
But if the negotiations fail, the United States should move to impose increasing tariffs on China's exports. An important Trump administration legacy should then be institutionalizing policies that force China and other mercantilists to change their behavior. There are many excellent options the President could implement. One of the best is the scaled tariff which would systematically target China's exports, creating pressure to reduce the trade deficit. The scaled tariff would discourage China's retaliatory tariffs. For every dollar China adds to the trade deficit by refusing to buy American products, the scaled tariff will increase the tariffs on China's products. As the tariff rises, the incentives for manufacturers to move their operations elsewhere will accelerate, increasing pressure on China. Or Trump could impose import quotas accompanied by single country import certificates. This would allow the US government to allocate or auction import rights to particular vital or high need Chinese products while limiting total imports from China to the value of China's imports of US goods. As the quotas phase in, China's exports to the US will be restricted to match its imports from the US. As with the scaled tariff, with single-country import certificates China's recent games to hurt American farmers and others will simply mean even fewer Chinese exports to the US.
Ultimately, if Trump hangs tough, China's leader must choose between playing fair and isolation. China will have to choose between joining the liberal world order and reduced access to western markets and technology. China's mercantilism will be Trumped.
Comment by Kev, 5/14/2019:
Thanks for this informative article
Response to this comment by Kev, 5/14/2019, 3/9/2020:
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