Trucks drive at the Yangshan Deep Water Port in Shanghai, China, on Oct. 19, 2020.ALY SONG/Reuters
Trade was not an issue with the Soviet Union. Western leaders did not have to take into account the effects of their security policies on trade with the USSR, or of trade policy on security.
Because there was no trade with the USSR, or none to speak of: Soviet leaders were not only at the helm of a totalitarian dictatorship, but practitioners of communism, including a closed economy, at least to the capitalist world. Trade with the USSR never accounted for more than 1 per cent of U.S. trade, or 4 per cent of European countries’.
China presents an altogether different conundrum. The country’s economic policy, nominally still communism, could more accurately now be described as state capitalism, with a heavy emphasis on exports. China accounted for one-sixth of all U.S. imports in 2022, and one-fifth of European imports.
For a time Western leaders saw this as a positive development. Certainly it was in economic terms. For all the talk of a China Shock, the arrival on Western markets of vast quantities of cheaply priced Chinese goods was a large net gain for the West.
Fashionable as it may be in some quarters to talk down the gains to consumers as having come at the expense of workers, the truth is that cheap imports also benefited large numbers of Western workers: as consumers themselves, and as the makers of the goods and services that consumers bought with all the money they saved owing to low-priced Chinese imports.
But trade with China also had an expected geopolitical payoff. Trading with the West would, it was thought, lead China to identify more with the West. In time they would become more like us: less dictatorial at home, less aggressive abroad.
Neither of those predictions has come true. If anything our exposure to trade with China is now seen as something of a threat, especially in militarily sensitive sectors or in commodities, such as critical minerals, where China has a stranglehold on the world market.
Where does this leave Western trade policy with China? The answer is unclear, except that it cannot be as it was before. Despite efforts to portray their interests as opposed, trade between two friendly countries is more an exercise in co-operation: each country specializes in its areas of comparative advantage, to their mutual enrichment. That is the enduring case for free trade. If, say, Portugal gets rich on trade with Canada, so what. We get rich, too.
But we do not want to enrich China. Indeed, so grave a threat has China become that we should perhaps wish that China were poorer, rather than richer – even if it means making ourselves a little poorer in the process. Trade with China was worth pursuing in the past. But it seems odd to be carrying on business as usual even as it is preparing to invade Taiwan.
That doesn’t mean cutting off trade with China altogether. But it does mean looking a little more carefully at the issue than we might have previously.
Take the Biden administration’s recent decision to raise the tariff on imports of Chinese electric vehicles from 25 per cent to 100 per cent. In most situations this bit of rank protectionism would be an obvious error – “a stark admission,” as The Globe editorial board wrote, “that U.S. automakers can’t compete.” Tariffs of this kind, they continued, not only hurt consumers, but invite retaliation and undermine international trade rules.
All very true, and all quite convincing – had the editorial been written a decade ago. The Biden tariffs are bad trade policy, without a doubt. But is trade policy still the lens through which they should be viewed? It is in our interest to pursue the freest possible trade with our friends. But is it the case with our enemies?
If Portugal takes over the EV industry, it’s not an issue. If China takes over the EV industry, it may be: not as a matter of economics, but of security. Such claims should still be viewed skeptically. There are any number of old-fashioned protectionist interests hoping to hide behind the newfangled concern for security. But they can’t be dismissed out of hand.
How to keep the momentum up for free trade even as we are taking a harder line on trade with China and other dictatorships? By offsetting higher barriers to trade with hostile countries with lower barriers to trade with friendly countries: “friendshoring,” as the phrase has it, rather than “onshoring.”
The one acknowledges new and legitimate security concerns in a changing world; the other merely capitulates to the demands of special interests for protection, which never change at all.