Samuel Corum/Sipa USA)(Sipa via AP Images
President Joe Biden is flanked by members of the United Steelworkers union as he signs a tariff document during an event in the Rose Garden at the White House, May 14, 2024, in Washington.
President Biden’s initiative to quadruple tariffs on made-in-China EVs, related batteries, solar products, steel, and aluminum has engendered the usual cries of outrage from the usual suspects. But there has clearly been a major shift in the thinking of the foreign-policy establishment, and that is all to the good.
This overdue policy reversal is not just about trade, or even trade and industrial policy. It’s about a realistic and comprehensive strategy to contain an adversary who plays by entirely different rules.
Even Treasury Secretary Janet Yellen, one of the few trade traditionalists in the Biden administration (she disparaged an earlier round of tariffs as a “tax on Americans”) now gets it. In her speech to the G7 on Thursday, Yellen pointed to China’s chronic “overcapacity and unfair trade practices.” Yellen added, “This is currently leading to production in some industries that significantly exceeds not only China’s domestic demand but also what the global market can bear.” She hailed Biden’s tariff increases, and called for a “united front” with European leaders against China’s aggressive mercantilism.
This is an astonishing turnabout for Yellen. China’s threat to the West is not just industrial. The whole Chinese system, orchestrated by the Chinese Communist Party, uses a combination of theft of intellectual property, partnerships with Western companies on coercive terms, extensive spying on Chinese and non-Chinese alike, and a variety of tactics to gain allies in the West, including sweetheart deals with financiers and extensive cultural exchanges that lavish free trips and stipends on potential useful idiots.
But listen to the rearguard arguments by those who either naïvely or disingenuously invoke “free trade,” as if the Chinese system had anything to do with free trade. Steven Rattner, a journalist turned Wall Street major player, writing in a New York Times op-ed, contends: “America’s new protectionist stance will raise prices, limit consumer choices and risk our growth.”
But the increase in prices on Chinese exports is an issue only if you take a short-run economic snapshot. For the long run, Biden’s industrial and trade strategy increases American prosperity by reducing dependence on China and bringing production home.
Rattner, in a cheap shot, also contends that Biden’s China policy is mainly political, “motivated by Mr. Biden’s desire to outflank his opponent in Rust Belt swing states.” This is also nonsense. The tariffs, under Section 301 of the Trade Act, are the result of an investigation of Chinese subsidies and dumping that began in 2018. Biden’s policy has been consistent since he took office.
Rattner ends by invoking David Ricardo, as if China’s state-led capitalism had anything to do with the kind of natural “comparative advantage” that the British economist described more than 200 years ago.
Wall Street benefits financially from an embrace of China. Others stuck in the traditional free-trade camp are merely misinformed.
Consider this piece by Tim Noah, in the usually liberal New Republic. Noah terms Biden’s China policy “Trade War Two,” and dismisses it as largely election-year politics. (“Trade War Two is at least as much a war between Biden and Trump as it is a war between the United States and China.”)
He warns, “The main thing Trade War Two will achieve is an end to a half-century of trade liberalization.” But Biden’s policies, as Yellen’s G7 speech indicates, are aimed at differentiating China’s aggressive state-led mercantilism from the practices of a concert of nations that play by roughly similar rules. Those rules can include a blend of industrial policies and liberal trade norms. It is China that is upending that order, not Biden’s response to it.
Meanwhile, one of the most conflicted trade traditionalists, Nelson Cunningham, whom President Biden foolishly nominated to be deputy U.S. trade representative, has withdrawn because Senate Finance Committee Chair Ron Wyden made clear to the White House that Cunningham could not be confirmed. For the better part of two decades, Cunningham was president of McLarty Associates, which was previously Kissinger McLarty. We all know who Kissinger was. McLarty is Mack McLarty, formerly Bill Clinton’s chief of staff. McLarty Associates consults on trade, and boasts 300 corporate clients.
This is what corporate-led “free trade” looks like in practice—revolving doors and conflicts of interests. It’s not clear what strings Cunningham pulled or IOUs he called in to get the nomination—he was once a staffer to Biden on the Senate Judiciary Committee—but he’s gone from a potential position of real policy influence. He will be some kind of adviser to the undersecretary of state for economic growth, energy, and the environment.
It’s akin to turning around the proverbial battleship, but the dominance of the free-trade cabal is at last ending. And the battleship is no longer pointing at America’s industries and workers.
