Greg Ip points out that the tariffs the Trump administration plans to enact on Chinese goods are not a preemptive strike. China has been engaged in predatory trade practices for years. This is well worth a full read and helps to put the tariffs into perspective .
If there’s a trade war between the U.S. and China, don’t blame Donald Trump : China started it long before he became president.
Even free traders and internationalists agree China’s predatory trade practices—which include forcing U.S. business to transfer valuable technology to Chinese firms and restricting access to Chinese markets—are undermining both its partners and the trading system.
Mr. Trump’s China crackdown is risky, but it’s on firmer legal, political and economic ground than many of his other trade complaints, for several reasons.
- These products are different:The classic case for free trade predicts that each country specializes where it has a comparative advantage, lowering costs and raising incomes for everyone. If China subsidizes exports of steel to the U.S., in theory the U.S. still benefits because consumers and steel-using industries will have lower costs, and while some steel jobs will disappear, more productive jobs elsewhere will take their place.
But starting in the 1980s, economists recognized that comparative advantage couldn’t explain success in many industries such as commercial jetliners, microprocessors and software. These industries are difficult for competitors to enter because of steep costs for research and development, previously established technical standards, increasing returns to scale (costs drop the more you sell), and network effects (the more customers use the product, the more valuable it becomes).
Read more here.
Jeremy Jones, CFA
Latest posts by Jeremy Jones, CFA (see all)
- Have You Cut the Cord Yet with Cable? - August 16, 2019
- Incumbents Fight Back Against Amazon’s Rx Inroads - August 15, 2019
- Is China Set for a Crisis Four Times Worse than the Great Recession? - August 14, 2019