Former U.S. Trade Representative Robert Lighthizer has an idea on how to deal with China – just raise tariffs on everything they sell us.
In his new book, No Trade is Free, Lighthizer said the U.S. needs to unilaterally raise tariffs on all Chinese imports in order to limit economic ties with America’s biggest adversary, and stop enticing companies from sourcing from there.
“I propose doing this clearly and phasing it in over time to minimize disruptions and allow for businesses to change their current practices,” Lighthizer wrote in his new book, released June 27. The main theme of the book is that the U.S. funds its rivals via corporate investment and Wall Street. “We need to stop now, before it’s too late” the book jacket reads.
The U.S. needs a new trade model. Or risk having its industrial base consistently usurped by Asia, primarily, where labor is cheaper, the currencies are weaker, and environmental regulations are often non-existent.
For now, when it comes to trade, the U.S. is focused on China.
In March, Sen. Josh Hawley introduced the Ending Normal Trade Relations with China Act (S. 906), which would revoke China’s Most Favored Nation status, or MFN, within two years of passing and give the President authority to raise tariffs even higher. MFN status is given to all members of the World Trade Organization. The U.S. revoked Russia MFN status in 2022, citing its invasion of Ukraine. Russia is a member of the WTO.
That bill is sitting in the Senate Finance Committee, chaired by Sen. Ron Wyden (D-OR) and free trade Sen. Mike Crapo (R-ID).
According to a press release from Hawley, the bill would “reduce our dependency on China and protect America’s working class.” Hawley also calls China “America’s greatest adversary” in his press release, something the Director of National Intelligence has said numerous times in its annual threat assessment reports, published annually.
Several bills on Capitol Hill are targeting China commerce. Josh Hawley of Missouri has one looking to revoke China’s Most Favored Nation status, which would automatically hike import duties on Made in China goods.
Tariffs In Spotlight
Lighthizer is mostly talking about the Section 301 tariffs against some $350 billion worth of Made in China imports imposed in 2018 by the Trump Administration. But China also faces other tariffs, including the Section 232 steel and aluminum tariffs and the Section 201 solar safeguard tariffs, which Biden renewed in February 2022.
But it is the Section 301s that are broadest and in the crosshairs. They come up for review this year, with many exemptions from tariffs expected.
In an interview with National Public Radio recently, President Biden’s USTR, Katherine Tai, said that the original China tariffs were not “strategic” enough and called them “provocative.”
The Section 301 tariffs were “done in a pretty provocative way with a lot of confrontational chest thumping, which I think drew some concerns both internationally and domestically – and I’m putting it diplomatically,” Tai told NPR. But she was less critical about Trump’s diagnosis that the U.S.-China trade relationship is out of balance. China’s unfair trade practices – forced technology transfers and theft of intellectual property – remain a big challenge, she said.”We are looking at the tariffs in a very strategic way,” Tai said. And while the review is still ongoing, it’s clear the Biden White House views the tariffs as leverage.
“I can’t tell you exactly where we’re going to end up precisely because we need to have the process run its course,” said Tai.
Within the Executive Branch, Tai stands a bit opposed to Janet Yellen, though her use of the word “strategic” in the NPR interview shows the two may be on the same page to some extent. The Treasury Secretary is not a fan of the tariffs. Yellen might be going to China in July, Bloomberg reported.
Last year, ahead of the G7 meeting of Finance Ministers, Yellen said that some of the tariffs “Seem to impose more harm on consumers and businesses,” Reuters quoted her saying on March 18, 2022. “They aren’t very strategic in the sense of addressing real issues we have with China.”
Tariffs worked to reduce China imports, though other markets picked up the slack.
While U.S. imports surged by 39% between 2017 and 2022, China imports were up very slightly, and still below their 2018 peak. As a result, China fell from 21.6% of U.S. imports in 2017 to just 16.5% in 2022.
Mexico, Vietnam, and Cambodia gained most from China’s falling share. Mexican imports rose by $111 billion since 2017, while Vietnam imports have more than doubled from a low base, and Cambodia’s have more than tripled.
The Section 301 tariffs also led to some reshoring to the U.S. A recent International Trade Commission (ITC) report found several sectors reshored some production due to the tariffs, regardless of new tax incentive programs such as the CHIPS Act for semiconductors and new investments in solar thanks to the Inflation Reduction Act. Higher costs associated with China tariffs did shift supply elsewhere, with some companies choosing to invest more in local supply, the ITC report said.
“Robert Lighthizer makes many important points in his new book,” said CPA chief economist Jeff Ferry. “He is absolutely right that the U.S. can and should reduce its dependence on China. This is essential not only for national security reasons but also for economic reasons. China’s growth in high-value industries undermines the U.S. economy. If you do not understand that China’s launch last month of its first commercial passenger jet, the C919, will soon cost Boeing billions of dollars of sales, you don’t understand how global competition works. Fortunately, Bob Lighthizer does understand, and is providing the right recommendations.”
