August 11, 2018, Dalian Port: The Peak Pegasus, carrying $20 million worth of American soybeans, finally docked in port following a month-long delay. The bulk carrier arrived five hours after China had imposed retaliatory tariffs on American exports. It was reported that the extra month circling the sea cost the cargo’s owner an additional $400,000. This is just one example of the real-world effects of the trade war between the United States and China. Hundreds of cargo ship companies, ordinary persons, and enterprises are suffering from the trade war and rising protectionism. Can the United States remain a steward of free trade despite such repercussions?
To date, the United States government has imposed tariffs ranging from 10 to 25 percent on a total of $250 billion worth of Chinese exports. Trade taxation measures are not enhancing the United States’ national security, protecting intellectual property, or reducing the trade deficit. Instead, the trade war is impacting the average citizen’s daily life, hindering economic growth, and disrupting the international economy. Fears associated with an escalating trade war have led to a global stock market pullback, with China’s stock market losing 20 percent of its value since the beginning of 2018. Both history and reality teach us that free trade—not protectionism—brings mutual benefits and prosperity.
Prices and jobs are pivotal to the lives of average citizens. Low tariffs ensure competition and a lower the cost of living. Free trade also increases consumer choice, further promoting the competition necessary to meet people’s needs. Normal bilateral trade relations with China will generate job opportunities and profits for enterprises that have markets in China. Free trade facilitates economic growth while its inherent efficiency provides more economic outputs. Finally, free trade allows for a more efficient allocation of resources, technology, and capital.
Normal trade relations between the United States and China also has critical global implications; a steady and predictable economic relationship between the world’s two largest economies provides a global anchor of stability. It provides confidence in the world economy, while also sending positive signals that help maintain interest rates, exchange rates, and other economic indicators. Free trade also strengthens the United States’ position as the global economic leader.
The United States took the lead in creating modern international trade rules, the disputes settlement mechanism, and the World Trade Organization, while also steering the overall trade liberalization process. Walking away from the WTO, as President Trump has mentioned, and imposing high tariffs without considering the petitions of the import-competing industries violates international trade rules. These actions are antithetical to the United States’ history and its overall leadership in international trade. They only serve to degrade the credit and prestige of the United States in the eyes of the international community.
A large-scale trade conflict with China will exacerbate worldwide protectionism and increase the risk of an international economic downturn. Some say that China has stolen job opportunities and exported millions of cheap products, displacing many United States workers in the process. Yet, international trade is not a zero-sum game. Free trade makes the “cake” bigger for everyone via a more efficient allocation of resources and its dynamism benefits the countries involved. It is true that low-skilled work shifts from developed countries to developing countries. However, this labor shift also provides an opportunity for high value-added industries and high-skilled jobs. Thus, America produces Warren Buffett, Steve Jobs, Elon Musk and other brilliant leaders in cutting-edge industries. Protectionism leads to inefficiency and stagnation; free trade fosters American innovation.
Free trade makes it possible for ordinary people to have broader choices of life styles, secure markets and profits for enterprises. It also promotes economic revival and growth, as well as enhances America’s global leadership and prestige. Cargo ships are still shuttling across the Pacific between the United States and China – it is not too late. Stop protectionism now, and embrace free trade.
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Yuhan Li is an M.A. candidate in International Trade and Investment Policy at George Washington University’s Elliott School of International Affairs. Her research interests lie in international economics and finance. She is currently interning at PYXERA Global.