By: Chris Eller

Back in 2016, then-candidate Trump, as part of his election campaign to put “America First,” promised to get tough on China, referring to China as having been responsible for “the greatest theft in the history of the world."[i] He cited intellectual property theft and an unfair trade imbalance before approving tariffs on Chinese imports in 2018, thus sparking the U.S.-China trade war.[ii]

The tariffs represent one element of the Trump administration’s foreign policy approach to decouple the U.S. from China.[iii] This policy is premised on the idea that America’s relationship with China, one of détente and engagement, has not brought China closer to freedom and democracy over the past fifty years. Rather it has allowed the Chinese Communist Party to exploit America’s free and open society.[iv] Implementation of the strategy necessarily includes confrontation such as the executive order banning TikTok, the removal of Confucius Institutes on campuses, and restrictions on the sale of semiconductors for Huawei’s smartphone technology.[v]

These instances have achieved varying degrees of success, but the process of decoupling through trade and tariffs is complex and, arguably, unattainable in the foreseeable future. At present, China is the second-largest foreign holder of U.S. Treasury securities, and the third-largest destination for American goods and services. The U.S.-China trade relationship supports an estimated 2.6 million jobs in the U.S.; and in 2019, the U.S. imported over $450 billion in goods from China while exporting over $100 billion.[vi]

China is also the largest importer of U.S. soybeans, Kentucky’s second most profitable crop.[vii] It is a crucial market for Kentucky’s corn-based products like whiskey, distillers dried grains with solubles (DDGS), and ethanol.[viii]Exports of goods and services from Kentucky to China, like motor vehicles and aerospace products and parts, have multiplied over the past fifteen years.[ix] Though leading economists have admitted that globalization has hurt U.S. workers more than predicted, foreign trade saves the average Kentucky family of four $10,000 a year by keeping prices down while increasing access to goods and services.[x]

Maintaining the status quo has become increasingly unjustifiable given the pace of recovery for the U.S. economy during the pandemic.[xi] As a result of the trade war, the U.S Chamber of Commerce estimates $1.6 billion of Kentucky’s exports to China are targeted for retaliation putting the 539,300 Kentucky jobs supported by trade at risk.[xii] American firms and consumers, not Chinese exporters, are carrying the tariffs’ costs.[xiii] The counter-argument that American manufacturing companies are taking jobs away from Americans by moving to China to export products back to the U.S. appears to be the exception rather than the rule and obscures the profitability of the Chinese market itself.[xiv]

The World Trade Organization recently found the U.S. had not met its burden in demonstrating the tariffs’s necessity as they only applied to products from China and were in excess of previously agreed upon tariff rates.[xv]Meanwhile, the Phase One trade agreement signed in January meant to reduce the U.S. trade deficit in goods has not yielded its intended results of increasing exports in exchange for reducing the tariffs.[xvi]

Attempting to break the U.S.-China relationship through tariffs is a misguided strategy that is neither practical nor beneficial. National security concerns over relations with China are not without merit; however, greater economic investment, innovation, and open exchange in the marketplace of ideas will have a more positive impact for both countries going forward.

[i] Lucy Colback, How to Navigate the US-China Trade War, Financial Times (February 28, 2020) https://www.ft.com/content/6124beb8-5724-11ea-abe5-8e03987b7b20.

[ii] Timeline: Key dates in the U.S.-China Trade War, Reuters (January 15, 2020) https://www.reuters.com/article/us-usa-trade-china-timeline/timeline-key-dates-in-the-u-s-china-trade-war-idUSKBN1ZE1AA.

[iii] Mike Pompeo, U.S. Sec. of State, Communist China and the Free World’s Future, Address at the Richard Nixon Presidential Library and Museum (July 23, 2020); David Chance & Roberta Rampton, 'Death by China' Economist Ascendant as Trump Pushes Tariffs, Hits China, Reuters (March 7, 2018) https://www.reuters.com/article/us-usa-trade-trump-navarro-analysis-idUSKCN1GJ2TU; Brendan Greely, Trump Raises Prospect of ‘Decoupling’ US Economy from China, Financial Times (September 7, 2020) https://www.ft.com/content/06047bc5-81dd-4475-8678-4b3181d53877.

[iv] Id.

[v] Exec. Order No. 13942, 85 Fed. Reg. 48637 (August 6, 2020); Rachelle Peterson, Confucius Institutes in the US that are Closing, National Association of Scholars (July 2020); Gao Wencheng, No Winner in Washington's Chip War Against Huawei, Xinhua (August 25, 2020) http://www.xinhuanet.com/english/2020-08/25/c_139316804.htm.

[vi] Major Foreign Holders of Treasury Securities, Department of the Treasury/Federal Reserve Board (last visited September 2, 2020) https://ticdata.treasury.gov/Publish/mfh.txt; Understanding the US-China Trade Relationship, Oxford Economics (last visited September 2, 2020) https://www.uschina.org/reports/understanding-us-china-trade-relationship; Trade in Goods with China, United States Census Bureau (last visited September 2, 2020) https://www.census.gov/foreign-trade/balance/c5700.html.

[vii] Soybeans, Kentucky Food and Farm (last visited September 2, 2020) https://www.kyfoodandfarm.com/soybeans; 2019 Kentucky Agricultural Overview, USDA's National Agricultural Statistics Service (last visited September 2, 2020) https://www.nass.usda.gov/Quick_Stats/Ag_Overview/stateOverview.php?state=KENTUCKY.

[viii] Ag Exports Matter to Kentucky’s Ag Economy, KY Corn Connection, Summer 2017.

[ix] The U.S.-China Business Council, Kentucky State Report, 2018.

[x] Michael Hirsh, Economists on the Run, Foreign Policy (October 22, 2019) https://foreignpolicy.com/2019/10/22/economists-globalization-trade-paul-krugman-china/; How Kentucky’s Economy Benefits from International Trade and Investment, Business Roundtable (last visited September 4, 2020) https://www.businessroundtable.org/archive/media/news-releases/kentuckys-economy-benefits-from-international-trade-and-investment.

[xi] Lauren Bauer, et al., Ten Facts about COVID-19 and the U.S. Economy, Brookings Institute (September 17, 2020) https://www.brookings.edu/research/ten-facts-about-covid-19-and-the-u-s-economy/.

[xii] Tariffs are the Wrong Approach, U.S. Chamber of Commerce (last visited September 2, 2020) https://www.uschamber.com/tariffs.

[xiii] Mary Amiti, et al., Who's Paying for the US Tariffs? A Longer-Term Perspective, National Bureau of Economic Research (January 2020) https://www.nber.org/papers/w26610.

[xiv] How is COVID-19 Affecting US Trade?, Dollar & Sense Podcast (August 10, 2020); Tom Hancock, US investment in China Rises Despite Trade War, Says Consultancy, Financial Times (August 26, 2019) https://www.ft.com/content/cabf76d4-c5a1-11e9-a8e9-296ca66511c9; The U.S.-China Business Council, USCBC 2020 Member Survey, 2020; AmCham Shanghai Releases 2020 China Business Report, American Chamber of Commerce in Shanghai (September 9, 2020) https://www.amcham-shanghai.org/en/article/amcham-shanghai-releases-2020-china-business-report.

[xv] DS-543: United States — Tariff Measures on Certain Goods from China, World Trade Organization (September 15, 2020) https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds543_e.htm.

[xvi] Matthew Goodman, et al., What's Inside the U.S.-China Phase One Deal?, Center for Strategic & International Studies (January 15, 2020) https://www.csis.org/analysis/whats-inside-us-china-phase-one-deal; Chad P. Bown, U.S.-China Phase One Tracker: China’s Purchases of US Goods, Peterson Institute for International Economics (September 14, 2020) https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods.