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US House panel suggests questionable protectionist policies to solve the Chinese Problem

Recently a bipartisan US congressional committee drafted a report with policy endorsements for trade relations between China and the US in 2024. The proponents of this bill assert that China poses a significant threat to the economic security of the United States. Consequently, they advocate for imposing stricter regulatory measures on China as a necessary response.

The report extensively delineates both the factors attributing to China's perceived threat to the economic security of the United States and the strategies proposed for addressing and reducing this purported threat.

In the context of the perceived threat posed by China, US policymakers argued that China violated the founding tenets of the World Trade Organization by using industrial policy to create unfair competition against domestic producers. Moreover, US policymakers are wary of the growing dependency the US has on China’s supply chain. Lastly, US policymakers worry that normal trade rela.ons with China may result in the US lagging behind in terms of domestic technological development.

In light of these concerns, diverse measures have been devised to fortify the economic stability of the United States in the face of perceived risks emanating from China. Firstly, the report argues tariffs should be levied against China in an attempt to restore economic leverage for domes.c industries. Subsequently, the US should bolster domestic industries such as agriculture by using various interventionist tools. The report also promotes involving US trade partners in creating a more hostile trade environment for China in order to avoid backdoor access to the US economy.

Although there are real concerns to be had about the economic practices of China, it seems unlikely that these measures will move the US in the right direction. The initial criticism of maintaining trade relations with China is that given their non-market oriented industrial policy, the only sustainable response is to use interventionist tools such as tariffs to protect US industries from unfair competition. When analyzing this argument, it is rather clear that it is riddled with numerous conceptual issues. If market-oriented policies are understood to be superior to China’s interventionist policies, it is unclear why the response to China’s interventionist practices is to match them.

More importantly, when reading the policy recommendations in the report this is a clear case of the cure being worse than the disease. At no point in the report is it clearly argued how tariffs help the US economy regain any advantage lost by China’s practices. However, relying on our understanding of economics we can reasonably infer that this will mostly harm the US consumers. Tariffs are essentially a tax on products coming from China, which will inevitably result in increased prices for customers. Therefore, this report fails to formulate a concise cost and benefit analysis looking at the effect tariffs would have on US customers' cost of living.

The proposal put forth by US policymakers to enhance the competitiveness of domestic industries through the utilization of subsidies and other interventionist methodologies also appears to be grounded in flawed economic reasoning. At no point while reading the report was the efficiency that results from free market competition mentioned. In addition, the productive inefficiencies that come from shielding an industry from free competition are also ignored. In essence, this report rings the alarm bells on trade with China without any serious economic solutions.


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