Whilst political tensions rise in the US ahead of presidential elections later in 2024, there seems to be one policy area in which both Democrats and Republicans find common cause: a ratcheting up of pressure on China through increased global trade barriers.
The US House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party published a bipartisan report in December 2023 which recommended an increase in tariffs on a range of Chinese goods.
Chairman Gallagher and Ranking Member Krishnamoorthi said, ‘[The report] embraces the clear reality that our current economic relationship with the People’s Republic of China needs to be reset in order to serve the economic and national security interests of the United States.’ The report went on to say that action was needed to reverse ‘thirty years of misguided policy’ and condemned what it called China’s ‘decades-long campaign of economic and technological warfare’ against the USA.
Whilst the report was wide-ranging, one of its main conclusions was that the US needed a much more robust economic response to China’s emerging challenge. The report’s authors said that China was guilty of ‘using an intricate web of industrial policies, including subsidies, forced technology transfer, and market access restrictions, to distort market behaviour, achieve dominance in global markets, and increase US dependency on Chinese imports.’
The report highlighted what it saw as China’s inability to live up to the commitments it made to free trade and open economies when it joined the World Trade Organization (WTO) in 2001. At this time, the US granted the country Permanent Normal Trading Relations (PNTR) status, also referred to as Most Favoured Nation (MFN), which meant that it could not be discriminated against in terms of trade relations. The Committee now recommends that China should be stripped of this status which would consequently allow the US government to introduce across-the-board tariffs on imports. ‘Rules of Origin’ should also be strengthened which would prevent China from circumventing these tariffs by using Mexico or other partner countries as a conduit for their exports.
It also recommended that, due to national security concerns, the government should impose ‘remedies’ on market-distorting Chinese products where there was a risk that US companies could be driven out of the market. The production of ‘legacy’ semiconductor chips was specifically highlighted – a sector which the Committee fears that China could dominate. Additionally, there should also be restrictions on US investment and trade in areas related to China’s critical and emerging technologies, military capabilities and human rights abuses.
Whilst the report was bipartisan in nature, signed off by both Democrats and Republican members of the Committee, there are still a few voices in the US attempting to challenge what seems to be an inevitable march towards a more protectionist and adversarial relationship with China. For example, free market think tank, The Cato Institute, asserts that the tariffs imposed by the Trump and Biden administrations are already resulting in higher prices, ultimately paid for by the US consumer. It cites the New York Federal Reserve which estimated that these tariffs increased costs for average US households by about $830 per year. Retaliation by the Chinese government led to US businesses losing market access which has never been returned.
Looking to the future, Oxford Economics estimates that taking away China’s PNTR would cost the US $1.9 trillion over a five year period and result in 800,000 fewer jobs. The Cato Institute claims that this is hardly the way to out-perform China, especially when the majority of the goods affected – predominantly consumer goods – offer no threat to US national security.
A further criticism of the recommended measures relates to their effectiveness. So far, Trump’s tariffs have resulted in Chinese companies either establishing factories in third party countries in Asia or routing goods to the US through these markets in order to avoid paying duties. The complex nature of Global Value Chains means that the US could already be exposed to four times the face value of Chinese imports, according to research by the National Bureau of Economic Research and quoted by the Cato Institute. This could rise further if more tariffs are imposed.
However, the arguments of those opposed to more protectionism are likely to fall on deaf ears. Both candidates (assuming the race is between Presidents Trump and Biden as seems likely) recognise the political capital to be gained from ‘bashing’ China (and potentially other competitors, such as the EU). In fact, the recommendations of the Committee’s report could well act as a blue print for either candidate’s election manifesto. With the world’s largest economy turning its back on free trade and globalization, further fragmentation and tensions within the global trading regime seems inevitable.
John Manners-Bell’s book, The Death of Globalization, is published by Sea Pen Books.