LONDON – It is hard to think of an issue that brings together the United States’ deeply divided political class more than the need to contain China’s growing influence, whether through trade restrictions, tariffs on Chinese electric vehicles (EVs), or banning TikTok. But while the national-security argument for such protectionist measures is undeniably compelling, it is unclear whether US political leaders and the American public are prepared for the potential economic fallout.
The prevailing belief among policymakers is that the surge of Chinese imports into the US market during the 2000s hollowed out America’s manufacturing base, making the kind of rapid military build-up that enabled the Allies to win World War II all but impossible. In US policy circles, the “China Shock” is often portrayed as a massive error that devastated towns across the Rust Belt and led to a sharp increase in inequality.
Consequently, there is widespread agreement among policymakers and commentators that the US must prevent a “China Shock 2.0” by imposing massive tariffs and trade restrictions on Chinese technologies such as cell phones, drones, and, crucially, EVs, solar panels, and green-energy equipment. President Joe Biden and his predecessor, Donald Trump, the presumptive Republican nominee in November’s presidential election, disagree on most issues. When it comes to dealing with China, however, both appear to be competing for the title of America’s most protectionist president.
But the China Shock narrative that underpins current US trade policy is deeply flawed. While competition with Chinese producers has adversely affected some manufacturing jobs, free trade has undoubtedly created more winners than losers. Moreover, low-income US consumers have been among the biggest beneficiaries of low-cost Chinese imports. Policymakers who believe that unwinding trade with China will not result in price increases and significant political backlash are in for a rude awakening.
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