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Forbes
Forbes
26 Jul 2023


Unlike most of its agenda, the Trump Administration’s efforts to impose tariffs on China and encourage U.S. companies with operations in the country to move their supply chains elsewhere have been embraced by the Biden Administration.

Earlier this year President Biden imposed restrictions on the exports of the most advanced computer chips to China, as well as the machinery used to manufacture them. This month Forbes reported that the Administration intends to impose new restrictions on chips used in artificial intelligence applications.

Besides these recent efforts to limit China’s access to sensitive U.S. advanced technology, a bevy of corporations have been working to disentangle their supply chains from the country.

Few people dispute that the relationship between the two countries has become considerably more adversarial in the last half dozen years, and that the U.S. government is right to take steps to ensure that critical technologies that can be used for military or other national security purposes do not end up in the hands of the People’s Republic of China.

However, the total trade between the two countries totaled nearly $2 trillion in 2023, most of which were in such strategically unimportant goods as televisions, textiles, and furniture. Should the government be pushing to reduce our trade in these sectors as well?

Probably not.

For starters, the implications of such a thing for U.S. consumers would be stark. The U.S. economy has evolved in the last three decades towards services and higher-value-added products. Undoing this evolution is all but impossible, and the process of U.S. wholesalers finding new trading partners in other countries to source such goods constitutes a decades-long transition. The size of this trade is simply too vast to accomplish such a thing in a short period of time.

The notion that we would create millions of well-paying manufacturing jobs if we were to force the companies who import such goods to make them here, which some politicians have been positing, is nonsensical: For starters, we currently have a labor shortage, and it simply isn’t cost-effective to make labor-intensive goods in the U.S., as it would be impossible for U.S. manufacturers to pay competitive wages and still be anywhere near price competitive with goods made elsewhere.

For those worried that continuing any trade between the two nations would strengthen China and weaken the U.S., think again.

China’s export-driven model has taken its economy as far as it can, and its softening growth is a predictable consequence of a state-managed economy that feels compelled to centrally direct investment rather than allowing the market to do so. The notion that its economy will soon outpace the U.S., something that was commonly assumed to be imminent just a year or two ago, is a long way away.

But slow growth in China is not necessarily a good thing: Lifting a billion citizens out of poverty and into the ranks of the middle class constitutes a heroic humanitarian achievement, and the world is much better off than if these people were still scratching out a living on the land.

Our trade strategy should be focused not on attempting to impoverish its citizenry but solely to deny it access to things that would benefit its military or strengthen the government’s surveillance state.

Trading commoditized products like agricultural goods, televisions, or even simple DRAM chips—not the state-of-the-art chips but those used in personal computers—does nothing to accommodate the Chinese army, but it does help citizens both here and there.

Zhu Yiming, founder of the China-based DRAM maker CXMT, observed that trade not only creates an interdependence between countries that can solidify a relationship—and encourage them not to take drastic steps that would end it—but that the autarky that the reshoring phenomenon hearkens to is simply unsustainable today. “There is not a single nation in the world that can run the entire supply chain alone,” he remarked.

However, should this strategic economic engagement fail, and if the Chinese government were to instigate a war with Taiwan, all bets would be off, and the country’s trading relationship and our standard of living would be made subservient to military exigencies. That this appears to be a real possibility is one reason so many firms are seeking to extricate their supply chains from the country. Its continued use of forced labor is another, and the U.S. should continue to prohibit the importation of goods that were produced in such a way.

But a continued economic engagement with China is good for both our consumers and their citizens, and that’s no small thing. And while Russia’s invasion of Ukraine shows that economic engagement is no guarantee of peace, having China’s economy dependent in a very real way on the U.S. doubtless does serve as a deterrent for the Chinese to challenge America to a military duel.

It’s clear that at least for the time being, both the U.S. and China see a benefit to easing economic tensions, which is why the U.S. Treasury Secretary and other high-level U.S. government officials have recently traveled to China.

Taking steps to avoid a military conflict with China is good economic policy. We should continue to allow cooperation between our nations to the extent it does not jeopardize our nation’s defense, and there is no reason we can’t engage the country while also limiting its ability to obtain advanced technology and weaponry.