Why Tariffs on Chinese Goods Make Sense

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The Trump administration has released a list of tariffs on Chinese goods that have benefited from intellectual property theft, totaling $50 billion. The products range from flat-screen TVs to aircraft parts.

This has elicited condemnations from well-heeled editorial boards in New York and Washington, who call them hasty, ill-conceived, haphazard, and guaranteed to invite an escalating response from the Chinese government.

But they will all agree to the same caveat: State-sponsored Chinese actors have indeed walked off with an incredible amount of hard-earned American IP.

Rather than continuing to ignore the problem, this administration is acting aggressively to stop it. It’s an instance when the White House should actually be applauded.

Let’s consider a few numbers.

IP-intensive industries in the United States support approximately 45.5 million jobs, represent more than 39 percent of GDP, and account for 52 percent of our exports. The administration’s Section 301 report, the basis for these tariffs, found “China to be the worst infringer of American IP, stemming primarily from Chinese policies and laws.” Altogether, Chinese theft alone costs our economy between $225 billion and $600 billion annually. Put another way: We’ve lost more than $1.2 trillion to it since 2013.

The transfer of IP has advanced China’s ability to be a manufacturing powerhouse and has expanded its economic and military capabilities. And it must be considered in the context of our bilateral trading relationship. We have amassed more than $4.3 trillion in merchandise trade deficits with China since 2001. A substantial portion of that is the result of China’s protectionist market policies – of which IP theft is part and parcel.

This is no secret; it’s been a problem about which business chambers have complained for years. The Obama administration was very public in its attempts to dissuade its Chinese counterparts from either requiring American companies to enter joint-partnerships with Chinese firms (and hand over proprietary knowledge) as a condition of market access, or from its outright support of China-based hacking groups. Those attempts ranged from a signed agreement and a Rose Garden ceremony for President Obama and Xi Jinping, to the 2014 indictment of People’s Liberation Army hackers.

But while such carrots and sticks slowed the cybertheft attempts, they didn’t stop. And they’ve resumed their pace again.

We need to be honest with ourselves: Now is the time for more stick. The only progress the U.S. has ever made with serial trade cheats has been the result of extraordinary pressure applied not only by the administration but by Congress, including – but not limited to – the threat of tariffs. Beijing allowing the renminbi to rise after the U.S. Senate passed currency manipulation legislation in 2011 springs to mind.

The tariff regimen President Trump has unveiled will help to restore some balance with China, as well as to re-create an ecosystem to innovate, design, and make products here that we can sell abroad.

We need that balance, because it’s beginning to tip the other way. We can’t reasonably assume that in the future high-value and strategically important products will be manufactured in America if the underlying IP has been rendered useless by China.

As for the American critics of these tariffs, they’re welcome to present a viable, competing plan that won’t take years to come to fruition. The U.S. economy is currently strong and unemployment is low, but a long-term economic disaster is in the cards if we continue to allow our innovation base to be hollowed out by this program of state-sponsored theft. Advanced industries such as robotics, nanotechnology, and additive manufacturing could be the next victims — before they even gain a substantial foothold in America.

The Trump administration’s Section 301 tariffs are overdue and welcome. If you want to change a bad actor’s habits, then force them to the bargaining table.

By Scott Paul
RealClearPolitics

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