Xi Jinping, China’s next president to be, is in D.C. today meeting with President Obama. He needs to get a simple message: America is going to play by China’s rules.
Among other things, this means government subsidies for American exporters who make their products here; special protections for what we consider “strategic industries” and technology that we will seed and grow only in the United States; investment incentives for companies that bring jobs back to the United States from other countries, and requirements that foreign companies that want to sell in what is still the world’s most lucrative market must make those products in America. U.S. companies that offshore jobs, production and technology will pay higher taxes, as well as tariffs on their goods entering the country. China can manipulate its currency all it wishes; we will add tariffs on Chinese goods to offset the difference. Don’t protect intellectual property; you’ll get less of it, and what you do get/steal will be subject to yet more tariffs.
But isn’t this protectionism? Call it what you wish. Tariffs and other measures to protect American industries and jobs are as old as Alexander Hamilton. They are now China’s rules for doing business, and by doing nothing about it aside from the desultory World Trade Organization case, we are doing great damage to ourselves.
The trading world that America made after World War II had a good run, creating prosperity and keeping the peace among trading nations. But it’s over, notwithstanding any symbolic, one-off trade deals announced during this visit. The rise of China and its state capitalism make it null and void because this order was dependent on everyone playing by the same liberalized trade rules. What do we have to lose? China buys little from America and its debt holdings are more dangerous to Beijing than to Washington. And don’t tell me about Smoot-Hawley and the Depression: Tariffs were already high when Smoot was passed, and the world didn’t have today’s globalization issues. No question the corporate and political elites want to continue the status quo. In a larger context, however, it is a recipe for national decline, if not national suicide.
In the long run, this will be good for China, too. The vast imbalances of trade, investment and debt can’t be cured without a fast-growing American economy and an American middle-class that is rising again. When the communist party finally collapses or reforms itself, maybe China’s new leaders will be interested in playing by old the American rules. In the meantime, America first.
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Today’s Econ Haiku:
Tolerance pays off
It’s true of economics
And other rainbows