Trump's China Tariffs Will Punish the U.S. Economy

(Bloomberg View) -- One thing to understand about President Donald Trump’s proposed new tariffs on China is that they are, in the first instance, a tax on U.S. producers and consumers. The revenue they’ll raise won’t come from China, but from the pockets of Americans who’ll have to pay more for Chinese goods.

Imposing this tax requires a strong justification, or at least an intelligible rationale. The Trump administration offers neither. It’s true that the U.S. has legitimate trade grievances with China, but there are much better ways of resolving them.

The White House says it will impose tariffs on $50 billion (or maybe $60 billion) of China’s annual imports to the U.S. Not quite yet, though: Details will follow in 15 days, and there’ll be 30 days for comments before any tariffs take effect. At the same time, the Treasury has been given 60 days to come up with new restrictions on investment by Chinese firms in the U.S.

Maybe Trump hopes these threats will lead China to make trade concessions and he will not need to actually put these tariffs in place. Conceivably, it could work out that way: Premier Li Keqiang said this week China will open its economy further, do more to protect intellectual property, and restrain its efforts to get foreign investors to transfer technology. If China follows through, that might be enough for Trump to declare victory and move on to his next adventure.

The danger is that Trump actually believes his own bombastic rhetoric about winning a trade war -- that the time for talking is past, that China’s promises are worthless, and that the administration will keep raising taxes on U.S. producers and consumers until the trade deficit with China is eliminated. That would be a lunatic growth-killing plan even if China didn’t retaliate. If China did push back, and raised tariffs of its own against U.S. exports, the impact on both countries’ growth would be worse.

Even if it doesn’t come to that, the other great cost of Trump’s approach is the threat it poses to the rules-based system of liberal trade -- one designed and built over decades by none other than the U.S.

The president may be deluding himself that he can change China’s behavior merely by bullying. A far better plan would be to bind an increasingly powerful China into this system as a matter of mutual advantage. This is a multilateral effort, involving the European Union and Japan, and it would be made more difficult by the unilateral rule-bending (or -breaking) that the Trump administration is proposing. How wise is it, really, to tell China, “Do as you’re told: Might is right”?

On intellectual property and technology transfer, China is widely agreed to have done some rule-bending of its own. That does need to be addressed -- and the existing system provides ways to do so. Oddly enough, the Trump administration acknowledges as much; it announced this week that the U.S. would launch a new case at the World Trade Organization on China’s rules for licensing technology, and it has also relied on the expertise of CFIUS, the committee on foreign investment, to block deals on national-security grounds.

Starting a trade war, however, is another matter entirely. That’s a plan with a likelihood of high casualties for both sides. No one is arguing that Trump lacks the authority to prosecute such a war. But he, and the American public, should be aware of what’s at stake.    

--Editors: Clive Crook, Michael Newman.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.

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