How Not to Mobilize Against China
President Trump is right about one thing when it comes to trade. As he has repeatedly argued, the chief target of any new US trade offensive should be China. Among the reasons are its huge theft of intellectual property, aggressive use of mercantilist industrial policy, mandated technology transfers for foreign investors, repeated cyberattacks, blatant bullying of foreign companies and some foreign governments, and massive currency manipulation in earlier years. These actions by China have produced a distinctly uneven playing field that severely disadvantages the rest of the world. The problems of the US steel, aluminum, solar panel, and washing machine industries pale by comparison. The administration is in fact preparing for action against China's theft of intellectual property, and perhaps more.
But President Trump's recent trade actions, especially the announced plans to impose tariffs on steel and aluminum, will have little effect on China. In fact, they will make confronting China with an alliance of trading partners much harder.
To effectively attack China's trade and investment policies the United States must have allies.
To effectively attack China's trade and investment policies, however, the United States must have allies. We no longer have the power to unilaterally compel other countries, especially a superpower like China, to mend their ways. China has in fact made clear that it will retaliate against US steps that cannot be justified under the rules of the World Trade Organization (WTO).
China always wants to avoid international isolation, however, and would feel compelled to respond cooperatively if confronted by a wide-ranging coalition of like-minded countries. It cannot retaliate against the entire world. The United States should thus seek to mobilize Europe, Japan, Korea, Canada, Australia, and as many emerging market economies as possible (including Mexico, Brazil, and India) to challenge the Chinese. Fortunately, most of these countries share the US antipathy toward China's policies and should be willing to help fashion a well-designed initiative to induce meaningful reforms in Beijing.
The protectionist steps that Trump is contemplating would also gut the primary objective of his own trade policy.
Instead, however, the United States is attacking these very countries. Existing trade pacts with Canada, Mexico, and Korea are threatened. Japan and Australia were left at the altar with the US withdrawal from the Trans-Pacific Partnership (TPP). New steel and aluminum tariffs would hit Europe, Brazil, Canada, and many others (but China very modestly). New US protection would divert trade to these countries, increasing their own difficulties. Any chance of working with these countries to address the common China problem will vanish if new barriers are in fact imposed on them.
Beyond all their direct costs to US consumers and triggering of export losses due to retaliation, the protectionist steps that Trump is contemplating would thus also gut the primary objective of his own trade policy. The administration must reorient its strategy or this pivotal aspect of it will also fail.