Former President Donald Trump was heavily criticized for the tariffs he imposed during his term and for proposing more such tariffs. But then-President Joe Biden New tariffs were imposed on Chinese steel shipped through Mexico.this act was largely met with silence. Are they both in the wrong?
It's an old question in economic policy: Are tariffs sound policy or a terrible idea? The answer is simple. But it's an old question, and the answer changes over time as circumstances change. That's why this lifelong free trader is now arguing for an exception. (Related article: JD FOSTER: Trump's tariffs won't reignite inflation)
In theory, tariffs are a terrible idea, but this conclusion is based on three propositions. First, countries must refrain from giving domestic producers an artificial advantage. In tariff-free trade, governments accept the outcome no matter what, and the most competitive companies win. This environment creates the greatest prosperity for the greatest number of people. Welcome to conservative economist heaven.
But we know that nations cheat. Sometimes inadvertently, sometimes deliberately. The second founding imperative requires some mechanism to identify cheating and resolve trade disputes quickly and fairly. Two common phrases fit this description. The first is the one heard in every schoolyard: “Cheaters never prosper. Those who break the rules must be stopped.” Thus, the now largely defunct World Trade Organization (WTO) was founded.
But the second phrase applies: justice delayed is not justice. Even when the WTO was functioning, the process took years — years that those victimized by fraudsters were advised to endure.
Finally, tariff-free trade is only sustainable if those convicted pay compensation. Under the current rules, the penalty imposed is to never commit the crime again. This is like being caught repeatedly speeding and the judge ordering you to drive safely as a penalty. What? No fines? Not in a trade system.
For all its weaknesses, the current trading system works very well for the United States for the most part. Of course, the WTO is too slow, and the lack of real penalties is certainly a drawback. But between the United States, the European Union, Japan, and a few other countries, the system is good enough.
But when a nation breaks the rules repeatedly and on a large scale, a different system applies. Yes, we're talking about China. It would be foolish to follow the trade rules equivalent of the Marquess of Queensberry rules when your opponent in the ring brings knives to the fight. Even Chuck Norris would skip it.
With China, tariffs are entirely appropriate. China subsidizes everything it cares about. It's sad, but it's true. It's foolish to ask American companies and workers to compete with China as if they were playing by the old rules.
The next question is to determine tariffs. The trade policy answer would be to impose tariffs roughly equal to the Chinese subsidies. A level playing field. But China subsidizes some things heavily, some things less, and some things not at all. And sometimes even the large subsidies are hard to quantify. Impossible to quantify exactly. Close enough is good enough.
Meanwhile, even Europe is beginning to acknowledge that China is aggressively threatening Western democracies. After a recent meeting, NATO denounces China as a “decisive backer” On Russia's war in Ukraine. It's not that President Xi Jinping loves Vladimir Putin in some authoritarian bromance. Xi Jinping loves anything that weakens the West.
NATO responded to Russia's war with economic sanctions, inadequate but decisive. This is economic warfare to punish the aggressor. China has declared economic warfare against the US. This is not a matter of enforcing proper trade etiquette. US tariff policy towards China needs to reflect the larger threat.
J.D. Foster, a former chief economist for the Office of Management and Budget and former chief economist and senior vice president for the U.S. Chamber of Commerce, now lives a life of relative freedom in the hills of Idaho.
The views and opinions expressed in this commentary are those of the author and do not necessarily reflect the official position of the Daily Caller News Foundation.
As an independent, nonpartisan news service, all content produced by the Daily Caller News Foundation is available free of charge to any legitimate news publisher with a large readership. All republished articles must include our logo, reporter byline, and affiliation with the DCNF. If you have any questions about our guidelines or partnering with us, please contact us at licensing@dailycallernewsfoundation.org.
