Why China Tariffs and Sanctions?
This is the first Issue in a new, occasional series on understanding the Chinese and American relationship with a co-emphasis on understanding America as well as China. Today looks at tariffs and sanctions. It also introduces an updated Substack Newsletter name (Andrew Singer Talks About China and America).
Tariffs on Chinese products and their corollary, sanctions against Chinese businesses and technology, are today considered by American politicians to be the sine quo non of our economic policy towards China. It was not always this way.
Before 1979, America had zero economic relationship with the People’s Republic of China. The two nations were completely decoupled by mutual animosity for more than three decades. Between 1980 and 2017, particularly after China joined the WTO in 2001, the American and Chinese economies became increasingly and intimately intertwined. This worked to both countries’ apparent benefits for the next three-plus decades.
The first Trump Administration began imposing tariffs on Chinese products in 2018. The Biden Administration continued, expanded, and strengthened tariffs beginning in 2021. Since then, sanctions against Chinese businesses and technology have also blossomed. The second Trump Administration has promised to further broaden and deepen the U.S.-China trade war.
To proponents, tariffs and sanctions will spur the American economy by reshoring manufacturing of the goods demanded by American consumers, thereby increasing jobs and lowering prices. At the same time, they are intended to punish China for subsidizing and protecting its businesses in the global competitive battle and to uphold American national security by protecting American technologies, supporting American businesses, and safeguarding American’s personal data from pirating and theft.
Given the above, why tariffs and sanctions are so popular in America against China (and promised against other countries as well) seems clear cut. Who would argue against improving American’s privacy, backstopping the American economy and businesses, and securing our national defense, all while increasing employment and lowering prices? I wouldn’t. The question is whether tariffs and sanctions are the best way to accomplish the above.
Economists debate the economic efficacy of tariffs and sanctions. Many assert that they will not accomplish their stated goals because:
First, companies that leave/diversify from China (see American shoe company Steve Madden) often relocate to other countries and do not return to the United States.
Second, American, Chinese, and other countries’ companies can get around tariffs by sending products mostly produced in China to other countries (e.g., various countries in South and Southeast Asia as well as Central and South America) for end processing to be considered exported from those latter countries without penalty.
Third, if Americans continue to demand tariffed products, importers’ costs will increase, and they will almost certainly pass these higher costs along to consumers instead of absorbing them and harming the bottom line.
Fourth, the trade war has incentivized China to successfully spur hi-tech and green development and diversify its export markets throughout the Global South to balance any loss of American access (e.g., China opened a new mega port and signed thirty bilateral trade deals in and with Peru last week).
Fifth, the global economy is a tightly-wound enterprise and anything that throws a wrench into the works domestically will cause cascading global economic pain.
Setting aside economic arguments pro and con, the principal popularity of tariffs and sanctions in America in my opinion is not due to economics at all, but rather politics.
In an America that is rattled and insecure, a forceful position for tariffs and sanctions enables politicians to capture power politics. They are simple, sexy, and cross the severe Red-Blue divide. China is an easy target to score points, votes, money, and thus power.
A more balanced approach, including investments in American industry as well as educating, re-training, and supporting American workers, is a better way to prepare for the future and not cling to the past.
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