If you’ve been reading the news over the past month, you’ve no doubt seen headlines signaling a looming trade war between the United States and China. Such a trade war would likely consist of each country slapping tariffs on each other’s imports. While this may seem trivial, the last time the United States practiced such protectionist measures, we dug ourselves deeper into a global recession.
In 1930, Congress passed the Smoot-Hawley Act, which laid a tariff on all countries importing goods into the United States in order to protect American farm workers. Other countries retaliated with their own tariffs, and the end result was a fall in international trade by more than 60 percent. Economists of the day had warned President Hoover not to sign the act and, as promised, the legislation worsened the effects of the Great Depression.
Although some argue that the president’s trade policies will be defensive rather than protectionist, similar to President Reagan’s semi-successful trade policies to curb Japanese imports, it’s difficult to distinguish a difference if the end result is still a trade war. And even if that difference were readily apparent, protectionist measures are designed to protect local businesses from foreign competitors, which was exactly what the Trump team campaigned for throughout the Midwest. Regardless, there are still legitimate concerns about China’s ongoing trade policies that need to be addressed.
During his confirmation hearing, President Trump’s nominee for commerce secretary said concerning trade with China, “[they] talk much more about free trade than they actually practice.” To a large extent, this is true. China has practiced “dumping,” or selling a product below market price to beat out competition with steel and other exports for quite some time. The European Union even responded to such complaints with a punitive tariff on Chinese steel and iron imports late last year. China can afford to do this because a significant part of its economy still consists of state-owned enterprises and is heavily subsidized.
China may be fleecing competitors in the short term, but as it becomes increasingly open to the world through access to markets like the EU or institutional regulation via the World Trade Organization, it is forced to comply with market norms. Taiwan, South Korea and the other so-called “Asian Tigers” of the ’60s had similar run-ins with reality. Over time, their heavily subsidized economies were forced to liberalize in order to participate in the global market, and their excessive growth rates of more than seven percent per year became more modest. So what, if anything, should the United States and the global market do to respond? The answer, I’d argue, is nothing. Instead, we should continue to back-channel trade complaints with Beijing and the WTO, and if necessary, implement punitive tariffs in conjunction with our allies.
It’s important to remember that trade isn’t a zero-sum game. China could be gaining the most from the current global market thanks to its government interventions, but the United States still gains as well. Starting a trade war that could escalate into a recession isn’t a smart move for our economy. It puts the market in flux and makes countries desperate for a way out. Additionally, it has been argued that China stands to lose a lot more in a trade dispute, and that could make it irrational on the global stage.
People have wondered for some time whether China would rise peacefully. In fact, a large part of the Obama administration’s Asia doctrine was focused on constraining China through economic interdependence. A great example of this policy was the Trans-Pacific Partnership, which could have laid a trade wall into China to force them to comply with more international norms, as well as become more dependent on the American consumer market. Given that Chinese growth is predicated on global trade, I would argue that a peaceful rise is exactly what China desires, but taking away that incentive through a trade war could lead them down a much different path.
Kyle Rempfer is a sophomore government & politics and Russian major. He can be reached at krempfer@terpmail.umd.edu.
