Protecting industries overly cozy with the government has nothing to do with national security.
Free-trade skeptics will say that even Adam Smith recognized national-security exceptions to free trade, and China presents a threat to U.S. national security, therefore tariffs on China are smart and necessary. They’re correct that there are national-security exceptions to free trade, and they are correct that China presents a threat to U.S. national security. But it does not follow from those two facts that tariffs on China are smart and necessary.
The Biden administration’s decision to extend Trump’s China tariffs and increase tariffs on steel, electric vehicles, semiconductors, and other goods is a perfect illustration of this phenomenon. It is using Section 301 tariffs, which are for counteracting unfair trade practices. The law does not exist for national-security purposes, and the administration’s justification of these tariffs is not based on national-security concerns.
The U.S. historically used Section 301 to reduce trade barriers in other countries. The idea was to punish or credibly threaten to punish foreign protectionism so that the foreign government would change course and open markets to U.S. businesses. With the creation of the World Trade Organization in 1995, Section 301 became less necessary for that purpose since the WTO has its own dispute mechanisms that could achieve the same results.
Section 301 has now been hijacked by back-to-back administrations to pursue protectionism. The White House was straightforward in its statement on the action that it is to “protect American workers and businesses.” Further evidence of the lack of national-security basis is that the same Section 301 has also been used against the European Union — not an enemy.
Of course, China does commit unfair trade practices. Even if there is no national-security justification, maybe the Section 301 tariffs are still a good idea.
We have a bunch of evidence from the Section 301 tariffs already imposed on China since 2018, which the U.S. Trade Representative (USTR) has studied.
Bryan Riley of the National Taxpayers Union writes:
The Review of Necessity that led to this action required USTR to review the effectiveness of existing Section 301 tariffs, including whether China has agreed to eliminate or phase out the unfair acts, policies, or practices targeted by the tariffs. The answer is a resounding “no.” According to the USTR review: “China Persists in Technology Transfer-Related Acts, Policies, and Practices … Industrial Planning and Targeting Continues to Motivate Technology Transfer … Cyber-Enabled Theft Has Continued Unabated … Chinese State-Owned Enterprise Attempts to Steal U.S. Telecommunications … Foreign Ownership Restrictions Persist in Multiple Sectors … … China Forces Joint Ventures Through Indirect Pressure … Opaque Administrative Reviews Continue to Facilitate Technology Transfer … China Continues to Drive Outward Investment Toward Advanced Technology … Industry Surveys Affirm the Continued Prevalence of Technology Transfer in China.”
So the Section 301 tariffs are not working to change China’s overall behavior. Doubling down in response to this evidence doesn’t make sense.
USTR also has a public-comment process where businesses can say what unfair trade practices they face. Riley writes, “USTR received 1,498 public comments during its review of Section 301 tariffs.” If U.S. automakers were victims of unfair Chinese trade practices, one would expect them to have told USTR about it. But “not a single public comment from the U.S. automobile industry asked for new tariffs on Chinese EVs and parts.”
That’s probably because only 1 percent of U.S. EV sales are from China. If the Chinese are using unfair trade practices to infiltrate the U.S. EV market, they are failing.
If the U.S. is concerned about the Chinese infiltrating the U.S. EV market, it should scrap all policies that mandate the sale or subsidize the purchase of EVs and allow automakers to sell cars according to market demand. But as Riley notes, the U.S. is effectively taxing and subsidizing Chinese EVs at the same time because “the Biden administration’s interpretation of Inflation Reduction Act EV subsidies allows someone who leases an EV containing Chinese-made batteries and components to receive a subsidy of up to $7,500.”
Section 301 also requires the administration to calibrate tariffs in proportion to the economic harm to Americans caused by the other country’s unfair trade practices. The Biden administration is ignoring that legal requirement. As Riley writes, “Nowhere in the USTR report is there any explanation of how the Biden administration calculated the cost of Chinese actions or the new U.S. tariffs.”
More fundamentally, if something is truly a national-security threat, it should not be counteracted with tax policy. That’s not what tax policy is for. The U.S. has countless legal and diplomatic tools at its disposal to punish its adversaries economically and protect Americans. Those include embargoes, asset freezes, investment controls, prohibitions on transactions involving Americans, and blocking foreigners from entering the U.S., among other things.
Those are all national-security exceptions to free trade and the free movement of people and capital. They happen all the time, especially with respect to countries such as Iran, Venezuela, Russia, and China, as well as terrorist organizations. These actions are, in many cases, deserved, and they can be beneficial to U.S. national-security policy aims. They are governed by a whole host of laws Congress has passed to enable national-security policy-makers to pursue U.S. interests.
If the Biden administration wants to make a national-security case against Chinese EVs, steel, or semiconductors, it has all of those laws at its disposal to do so. It has not made that argument. As NR’s editorial from this morning says, “Biden is protecting industries close to government while performing for his pals in organized labor, not being tough on China.”