US cannot take on China without help
It is testament to the economic wrongheadedness and political ineptness of Donald Trump’s trade policy that even when he has a point his actions manage to alienate the US’s natural allies.
First Trump announced tariffs on steel and aluminium, ostensibly aimed at enhancing national security, but in fact squeezing those US allies that do not manage to negotiate exemptions. His next target, China’s abuse of intellectual property, is a more justified focus of activist policy. But the unilateral actions Trump has laid out are likely to escalate trade conflict without resolving the underlying problem.
While 25% tariffs on up to $60bn of Chinese industrial and technology products and planned restrictions on Chinese investment in the US sound tough, there are limits to what the US can do alone. There is an international coalition there for the taking if Trump wants to take on China’s distorting policies on trade and investment. But that will require subtlety on the part of his administration and a willingness to use all the tools, including multilateral ones, at its disposal. As things stand, Trump is driving the US towards a trade war that he is highly unlikely to win.
It can hardly be denied China steals intellectual property on a vast scale. It also distorts its own economy with subsidies and regulation. For years, US and European policy makers worked on the assumption that the arc of China’s development bent towards liberalisation.
With the aggressively mercantilist approach of Xi Jinping, that can no longer be assumed.
However, for the US to come up with a fake justification such as national security and use it to threaten the EU with tariffs on steel is a perverse response. Its retaliation against China for intellectual property theft is also likely to be counterproductive. China is an autocracy that has the means to absorb the political pain of tariffs against its exports. If it retaliates against the US’s export-dependent agricultural sector, Trump’s promises to defend rural US will be exposed. London, March 23