On international trade, President Donald Trump is right about China. That country has indeed “looted” the United States with unfair trade practices. Trump is also right that the U.S. economy should be decoupled from the Chinese economy. But Trump is wrong that the U.S. should stop trading with China today. 

The key problem with an immediate full stop to trade is that the U.S. is heavily dependent on China for essential economic inputs into our economy. If China were to order its companies to stop exporting various goods to the U.S., then the U.S. economy would be gravely damaged. By contrast, the Chinese economy and its people could adapt if U.S. exports to China ceased. 

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The U.S. should decouple its economy from China but on a more stable timeline.

The Trump administration should formulate a four-year plan under which essential goods currently exported from China to the U.S. would be relocated to our shores or those of other more respectable trading partners by January 2029, when Trump leaves office. At the same time, the Trump administration should reach a handshake agreement with Xi Jinping, the ruler of China and chairman of the Chinese Communist Party, under which China would continue to supply the U.S. with low-value-added goods such as apparel, footwear, furniture, toys, and athletic equipment. A U.S. goal should be to encourage China to devote its productive resources to manufacturing products that are not essential to the U.S. economy. 

If the U.S. were to decouple today and stop exporting high-value-added goods to China, then China would accelerate what it is already trying to do: develop its own very advanced technology industry. 

A policy of the U.S. should be to encourage China to focus on manufacturing low-value goods that would not compete with what the U.S. does best in international markets: exports of the highest-value-added goods and services. 

In addition, over the next four years, through legislation, not executive orders, the Administration should nudge U.S. companies to move production of low-value-added nonessential goods to countries other than China. America’s national prosperity and security are enhanced when clothes and shoes for domestic consumption are manufactured in geographies where wages are low. 

By definition, production resources are scarce; they are limited. The U.S. economy will be stronger when scarce resources are devoted to the highest-value-added goods and services. The U.S. enjoys a strong comparative advantage in goods and services where inputs of intellectual capital are high. For example, the U.S. company Nvidia designs 100% of the world’s most powerful accelerated computing semiconductors. The country wants Nvidia to focus its scarce resources on designing chips, not sewing clothes.

This is a trite example, but it makes the essential point. Americans should not assemble widgets. Americans should focus on producing the highest-value-added goods and services possible.

Congress should also enact legislation that raises corporate taxes on companies that do not move production from China to the U.S. or to countries strongly allied with the U.S. Very low corporate taxes would encourage U.S. companies to source their highest-value-added goods and services from the U.S..

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But education reform is also needed. Today, the U.S. education system fails our young. There is an acute shortage of high-skilled workers in this country. Legislation should be passed to provide the carrots and sticks to improve the education system. In addition, Congress must expeditiously pass permitting legislation so that major construction projects can be approved and completed within two years. It is not acceptable that almost three years after the passage of the CHIPS and Science Act of the Biden administration, the U.S. remains completely dependent on Taiwan for the most advanced semiconductors. 

The Trump administration should act with prudence and speed, but with a mind to ensuring the U.S. economy is served rather than damaged by decoupling.

James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be reached at [email protected].