Donald Trump’s China tariffs make sense

Made in China label

President Trump has done many counterproductive things on trade. His recently announced (and later scaled back) steel tariffs, for example, will punish car makers and other industrial users of steel. And his decision to pick fights with nations in Europe and North America needlessly angers important allies.

But with his announcement to impose penalties on up to $60 billion in Chinese imports, Trump has finally hit on a trade action that makes a certain amount of sense.

China’s numerous state-owned companies limit access to Chinese markets, while exports to the United States continue at a robust level. Its practice of requiring foreign companies to share trade secrets in return for market access is nothing short of a shakedown. And its tolerance for (perhaps even encouragement of) theft of intellectual property makes it a lawless frontier for international companies trying to do business.

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Trump’s threatened tariffs are meant to effect change in China, not — as is often the case with tariffs — to protect U.S. Industries that know how to throw their weight around politically.

Many free-traders will see these tariffs as yet another in a long line of counterproductive moves by the president. There could be some truth to that reasoning. But the tariffs also reflect a growing belief among U.S. Business leaders that a laissez-faire approach simply isn’t working.

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Such an approach relies on the power of markets, free enterprise and the survival of the fittest companies. In China, however, a gargantuan, single-party state holds the leverage to dictate terms to private companies.

Whether these tariffs work is an open question. China will naturally respond with its own tariffs, focused on U.S. Agricultural products, and perhaps with a more truculent foreign policy.

Global stock markets, meanwhile, were spooked by the prospect of a trade war between the world’s two largest national economies. The Dow Jones industrial average fell by 724 points, or nearly 3%, after the tariffs were announced Thursday, then dropped an additional 425 points on Friday.

To truly be effective, these threatened tariffs should be combined with the U.S. Re-entry into the Trans-Pacific Partnership, a proposed trading zone linking 11 nations (not including China) in Asia and the Americas. In fact, if the United States were to take only one action to put pressure on China, joining the TPP would be the better approach.

TPP would turn the dispute with China into a multilateral affair. In virtually all efforts to pressure a nation to change its ways, a concerted effort by multiple nations is more successful than one nation going it alone.

The road ahead won’t be easy. Trump has not done himself any favors by alienating many U.S. Allies in Canada, Mexico and Europe. Or with his rash decision, at the beginning of his presidency, to take the United States out of TPP.

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Even so, there’s nothing wrong with sending a message to China that business as usual isn’t sustainable.

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