Cutting Off Trade Will Make the U.S. Poorer and China More Totalitarian
In a bitterly polarized era, China bashing is still bipartisan. President Donald Trump opens with tariffs, the Democrats call and raise, and then it’s Trump’s turn to up the ante again. The People’s Republic is now almost universally seen both as an economic rival that has ravaged the American economy and as a military rival that threatens American allies and world peace.
It is certainly reasonable to be suspicious of the Chinese Communist Party. Its recent trajectory is dispiriting: Where many of us hoped economic liberalization would produce political liberalization, an authoritarian backlash instead started clamping down on both free markets and free speech. The longstanding repression of ethnic minorities and political dissenters was industrialized and digitized.
And while previous Chinese leaders preferred to set aside contested geopolitical issues and leave them to later and wiser generations, today’s wolf warriors have increased military pressure against their neighbors, threatening Taiwan with invasion and other countries with trade coercion.
All the worries about Chinese President Xi Jinping’s despotism were enhanced when he maintained his alliance with Vladimir Putin after the Russian leader’s brutal 2022 attack on Ukraine. Even for a card-carrying free trader, it may now seem reasonable to screen Chinese investments, to keep the most sensitive technologies out of their hands, and to make sure we aren’t too dependent on them for any single resource.
But as a newly emboldened Trump assembles a Cabinet of national security hawks and economic nationalists, we seem to be heading for much more than that. Several of his choices to staff his administration have agitated for decoupling the American and Chinese economies and imposing harsh technology restrictions. And that would not make the situations that worry people about China better. It would make them much, much worse.
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The first casualty of any trade war is the economy. Many Americans have the impression that only Beijing benefits from U.S.-China trade. But a one percentage point increase in imports from China caused a 1.9 percent decline in U.S. consumer prices, saving a representative American household roughly $1,500 a year, according to one estimate by London School of Economics professor Xavier Jaravel and Federal Reserve Board of Governors economist Erick Sager.
The effect was largest in product categories more popular among low-income consumers, such as apparel and consumer electronics. After winning an election largely because of discontent over inflation, Trump seems ready to start his second administration with tariffs that would raise consumer prices.
And prices are not just about prices. When consumers have more purchasing power, they use it to buy goods and services in other, more high-productive sectors. Higher tariffs would lead to lost jobs, and inputs would become more expensive for American producers.
Some research suggests that competition from international trade can lead to better wages in new roles for U.S. workers. A 2017 paper by the economist Ildikó Magyari estimates that the American companies most exposed to Chinese imports expanded employment 2 percent more per year than other companies did. Some of these were manufacturing jobs—with higher wages, because they are in the stages of production where workers add more value—and some were complementary service jobs, in such areas as engineering, design, research and development, and marketing.
Apple offers a fascinating example. Trump has often complained that China is the biggest beneficiary of the iPhone, just because the devices are often assembled there. But when researchers Kenneth L. Kraemer, Greg Linden, and Jason Dedrick disassembled an iPhone 7 in 2018, they found that almost all of its value was captured by Western producers of parts, including hundreds of thousands of American researchers, designers, programmers, salespeople, marketers, retailers, and warehouse workers. China just got 1.3 percent of the price paid for an iPhone, and that offshoring made it possible to move U.S. labor to the more value-added parts of the supply chain.
Furthermore, more than a million American jobs depend directly on exports to Chinese consumers. About 0.5 percent of the U.S. work force would lose their jobs if the U.S. lost access to its third-largest goods exporting market.
In other words: If Trump passes the tariffs he’s been promising, the GOP’s newfound identity as the party of the working class would be just a brief stopover on the way to becoming the party of the unemployed class. The economy would eventually find work for most who lost their jobs in this decoupling shock, but
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