Trade war with China? We’re already in one

Yesterday, there were two developments on the trade front. First, the Trump administration said it will impose tariffs on $60 billion in Chinese goods and limit China’s ability to invest in the U.S. technology sector. Second, the administration issued a reprieve on steel and aluminum tariffs for some of our closest trading partners.

As a supporter of free trade, I welcome the second development. But I also welcome the first. Why? Because it is an appropriate and much needed response to Chinese anti-competitive practices.

China is waging war against our technology industry. It violates the intellectual property rights of our firms by imposing restrictive licensing arrangements in China and by outright cyber-theft. (John provides a list of specific Chinese improper practices in the post immediately below this one). Through these methods, says one tech executive who deals with China, they intend to “eliminate our companies in the Chinese market and then take them on globally.”

The past administrations rejected a retaliatory response. They preferred to jawbone. Predictably, they failed to move China.

The Clinton administration fought back against Chinese intellectual property abuses in 1995. China backed down.

The Washington Post points out that China’s economy is now in a much better position to withstand blows we inflict through trade restrictions. However, the regime still has strong incentives to avoid an all-out trade war. A dictatorship sitting on a tinderbox of discontent over lack of freedom is well-advised to keep delivering strong economic performances.

The Chinese are known for playing the long game. Right now, the long game move is to resolve this dispute with Trump and then revive its war when the Trump tempest has blown over. Thus, there’s a good chance this dispute will be resolved largely in America’s favor without a sustained trade war.

In any event, I don’t think the national interest would be served by continuing to ignore China’s war on our tech sector. You cannot keep turning the other cheek to a belligerent adversary.

If we’re headed for a trade war with China, we’ll want to be on the best possible terms with our friendly trading partners. Yesterday’s second development — the reprieve from tariffs on steel and aluminum on our friends — is welcome for that reason, as well as its economic merit.

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