OPINION:
Many blame tariffs imposed by President-elect Donald Trump for the rise of protectionism, but the global trading system was dysfunctional long before MAGA hats.
After World War II, the General Agreement on Tariffs and Trade — the predecessor of the World Trade Organization — was established to reduce barriers to commerce among Western democracies and emerging economies.
Systemic conflicts largely concerned Japan’s keiretsu system and Canadian and European subsidies, but those were quarrels among friends.
After the Soviet Union collapsed, Western nations welcomed Russia and China into the WTO, wrongly assuming that, given the right incentives, they would evolve into more democratic societies without imperial ambitions.
Instead, two aggressive states emerged at the center of an axis with North Korea and Iran bent on displacing the U.S.-led liberal international order.
Russia exported oil, natural gas, metals and other commodities to rebuild its military, threaten neighbors, seize Crimea and invade Ukraine.
China’s mercantilism attacked the foundations of Western prosperity by threatening U.S. and European core manufacturing. Now it is formidable in electric vehicles and many other leading-edge industries.
China’s combination of tariffs, regulatory barriers and often-veiled subsidies frustrated the WTO dispute settlement so much that President Barack Obama blocked appointments to the Appellate Body, which is fundamental to the institution’s relevance. Presidents Donald Trump and Joe Biden continued this policy.
Since the early 1990s, imports from China have accounted for millions of lost U.S. manufacturing jobs. That laid the foundation for Mr. Trump’s economic message in defeating Hillary Clinton in 2016.
China threatens to absorb Taiwan by force, asserts vast territorial claims in the South China Sea and bullies neighbors such as Vietnam and the Philippines.
After failing to reach an agreement to resolve systemic issues, Mr. Trump levied tariffs on a broad range of Chinese products. Mr. Biden added duties on EVs, lithium-ion batteries and solar panels and launched a huge industrial policy effort.
In varying measures, the European Union is following suit.
Consequently, China is looking to emerging markets such as Southeast Asia, and we’d be smart to engage those nations, too.
Like the Biden administration, the Europeans believe they can selectively engage with China on trade and limit decoupling to where it serves their strategic industrial policy interests. That would permit the Europeans to rehabilitate a broader WTO context for trade.
Unfortunately, with the prosperity that approach enables, China can expand its navy, threatening to drag the Western Pacific and perhaps the whole world into war. As importantly, by answering China’s mercantilism with only targeted tariffs and industrial policies, Washington and Brussels play on Beijing’s home court.
Autocracies can dole out subsidies, offer cheap credit through state-controlled banks and impose imaginative nontariff barriers on foreign products with limited accommodation to adversely affected domestic interests.
Western governments must appease large domestic constituencies, which can deliver or withhold votes and often demand outsize largesse.
Hence, Mr. Biden’s automotive and semiconductor strategies have pro-union elements, which raise costs and would require continuing subsidies to be viable.
Considering the budget challenges that U.S. and European governments face, that’s too expensive, and Mr. Trump’s proposed 60% tariff on Chinese goods offers the least-cost option.
Increasingly, American growth will be premised on artificial intelligence.
The most advanced semiconductors are designed by Nvidia, Qualcomm and other U.S. companies but are fabricated in Taiwan and have equipment made in the Netherlands. Consequently, America has unavoidable security interests in both the Pacific and Europe.
To finance the vast investments in AI, the United States must have access to wide export markets for its chips and software, especially in fast-growing Asia outside of China.
Southeast Asia is attracting a great deal of foreign investment, much of it interregional, and becoming an economic bloc and dynamo that rivals China, India, Japan and South Korea, the U.S.-Mexico-Canada Free Trade Area and the EU and U.K. under the umbrellas of the Trans-Pacific Partnership and Regional Comprehensive Economic Partnership.
Exports from Vietnam, Malaysia, Thailand and Indonesia are expected to grow to $2.2 trillion by 2030.
Putting a trade wall around America with across-the-board tariffs, as Mr. Trump proposes, would significantly alienate these rapidly emerging economic powerhouses and damage U.S. security cooperation in the Pacific to counter Chinese imperial designs.
The United States should impose a comprehensive mechanism to balance bilateral trade with China and redirect commerce to other, mostly Pacific economies.
For example, require licenses to import from China. Exporters could be issued licenses in amounts equal to their sales in China to resell to U.S. importers.
The United States should also create a new Asian-centered multilateral mechanism by rejoining the TPP. Canada, Japan and South Korea are members, and the U.K. is negotiating membership. This could encourage the EU to abandon its bilateral approach to the region and seek membership, inspire India to join and together create an alternative to the WTO without China.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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