Rapidly escalating tariff threats between the U.S. and China may be the fever that breaks the illness. But if this standoff gets any hotter, it could fatally affect the economies of two nations that need each other to prosper.
The fact is, China needs the U.S.
We educate their top people. Over 350,000 Chinese students are in the U.S. today. It’s part of China’s national strategy. The Chinese government wants these students to get the latest training in scientific, IT, biomedical, and technical advances and bring this knowledge back to China. They also come to the U.S. to absorb our culture and spirit of innovation. The Chinese hope the intellectual freedom and flexibility taught by top U.S. universities will turn their students into top innovators. And this strategy is paying off, as we increasingly see real tech innovation from the Chinese.
They need our food. We are a source for safe and healthy agricultural products. The Chinese have had multiple incidents of tainted food from unscrupulous businesses cutting corners to enhance profits. Increasingly, sophisticated and wealthy Chinese citizens say they lack trust in their own country’s food. The U.S. exports roughly 30 million tons of soybeans to China annually.
And the U.S. needs China.
They supply our country with low-cost products. It would be hard for us to replace these products with domestic alternatives without shortages or spiking inflation. The Chinese are the exclusive or primary manufacturer of a range of goods that Americans enjoy every day—from cell phones to household goods. Tariffs on these products means a potential price increase for consumers, raising most Americans’ cost of living. This would boost inflation, and the impact would disproportionately fall on older and lower-income Americans who are more likely to rely on low-cost Chinese imports.
They buy our goods. We need to be able to sell our goods in the world’s largest market, which is rapidly growing. China also is an inextricable part of the supply chain for many U.S. companies and manufacturers.
They hold our debt. The Chinese hold more than $1 trillion of U.S. government debt. If they sell those treasuries, our market could tank.
Which strategy will prevail? Well, in some ways, the U.S. is at a disadvantage. We’re saddled with debt. We have fewer people. Our rules can sometimes slow down innovation. We must recognize our weaknesses and become more resilient. But working to make our country stronger does not mean making rash economic decisions that could have long-term negative consequences for our economy.
A trade war based on increasing tariffs will hurt both countries. Our markets will tumble, inflation will rise, and Americans will suffer economically. The Chinese will also suffer, and they could face a bigger challenge: Their citizens want clean air and water and safe food.
This is a lose-lose scenario.
A better approach is to promote lawful policy and diplomacy. U.S. companies doing business in China face limitations, ambiguous and ever-changing legal rules, and a harsh requirement of an equal or close-to-equal Chinese partner. Chinese companies that want to sell their products in the U.S. should be required to do business here under the same rules imposed in China.
The administration has identified the unfair requirement of sharing intellectual property to do business in China and initiated a proceeding at the World Trade Organization (WTO). This is the way trade dynamic is supposed to work. Congress or the president could give the WTO process a boost, engaging China in talks on investments and other areas, while offering incentives both at the state and federal level to our own companies.
The U.S. and China drive the global economy. Our geopolitical future is a battle between the democracy, liberty, freedoms, and open markets of the U.S., Europe, and parts of Asia, and the one-party, censored authoritarianism of China.
A tariff-based trade war has no winners. But diplomacy and a negotiation within a WTO proceeding timetable can get results without risking the economic future of two world superpowers.
Gary Shapiro is president and CEO of the Consumer Technology Association (CTA) and author of the New York Times best-selling books, Ninja Innovation: The Ten Killer Strategies of the World’s Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream. His views are his own. Connect with him on Twitter: @GaryShapiro.