Imports from China to the U.S. have cost Americans millions of manufacturing jobs. But building a trade wall around America — as President-elect Donald Trump proposes — will hurt American consumers and U.S. national security unless the Trump administration builds bridges with America’s Southeast Asian allies.
China’s mercantilism erodes the foundations of Western prosperity by threatening core manufacturing and technology-intensive activities. China has seized leadership in electric vehicles and green-energy equipment.
But the U.S. didn’t fire the first shot in this trade war. Ninety per cent of publicly traded companies in China report benefiting from subsidies — a system that is inconsistent with free trade.
China’s combination of tariffs, regulatory barriers and various subsidies so frustrated the World Trade Organization’s (WTO) Dispute Settlement processes that then-president Barack Obama blocked appointments to the Appellate Body.
Both Trump in his first term and President Joe Biden continued this policy — wounding the WTO’s mechanism for resolving disputes among member governments and its fundamental relevance.
China is anything but peaceful. It threatens to take Taiwan by force, asserts vast territorial claims in the South China Sea and bullies Vietnam, the Philippines and other neighbours.
After failing to reach an agreement with China to resolve systemic trade issues that might have resuscitated a WTO-centred system, the first Trump administration levied tariffs on a broad range of Chinese products.
Biden then added tariffs on EVs, lithium-ion batteries and solar panels and launched industrial policies to help American manufacturing catch up.
Now the European Union (EU) is following suit. Like Biden, European leaders believe they can selectively engage with China on trade and limit decoupling to where it serves their economic and security interests. This would permit the EU to preserve a broader context for a WTO-based, multilateral system.
Yet by answering China’s mercantilism with targeted tariffs and insular policies, both Biden and the EU are playing on Beijing’s home court.
Autocracies like China can dole out protection and subsidies with limited accommodation to competing domestic interests. In contrast, Western governments must cultivate interest groups that can deliver votes and demand shares of the largesse.
The result in the U.S. is the pro-union and progressive social agenda elements of Biden’s automotive semiconductor and other industrial strategies. Those conditions raise costs and will require subsidies beyond the start-up assistance that the Chips and Science Act and Inflation Reduction Act provide. Considering U.S. federal budget challenges, Trump’s threatened 60% tariff on Chinese goods is the lesser of two evils.
Increasingly, the ASEAN bloc of Pacific nations is attracting more foreign investment — much of it inter-regional. Under the twin umbrellas of the Trans-Pacific Partnership (TPP) and the Regional
Comprehensive Economic Partnership, ASEAN is becoming an economic bloc that rivals China, India, Japan and South Korea, the U.S.-Mexico-Canada Free Trade Area and EU-U.K. The goods exports of Vietnam, Malaysia, Thailand and Indonesia are expected to grow to $2.2 trillion by 2030.
If the Trump administration imposes across-the-board tariffs, this would permanently alienate these rapidly emerging economic powerhouses — and damage U.S. efforts to build a cooperative security agreement in the Pacific to counter Chinese imperialism.
Instead, the U.S. should impose a comprehensive mechanism that balances bilateral trade with China and redirects commerce to other, mostly Pacific economies. For example, the U.S. could require licences to import from China. These could be issued to exporters in amounts equal to their sales in China, to be resold to importers.
Additionally, the U.S. should encourage global cooperation by rejoining the TPP. Canada, Japan and South Korea are TPP members and the U.K. is negotiating membership. This could encourage the EU to abandon its bilateral approach to the Pacific and seek membership, inspire India to join and create a WTO without China.
The decoupling from China is gathering momentum in both the U.S. and Europe. The beneficiaries of this shift — and also where investors can focus — are firms that are realigning supply chains and will profit from large markets in Southeast Asia. These nations will be the locus of future global growth.
Peter Morici is an economist and emeritus business professor at the University of Maryland