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Peter Morici: Reshaping the world after tariffs

| Thursday, July 12, 2018, 8:06 a.m.

President Trump pressuring Western allies on defense spending and trade can be viewed in two ways. Wrongly, detractors in academia, the media and on Capitol Hill paint him as reckless, ignorant and dangerous. Rather, he is a leader, not always lost in the details or burdened by history, who instinctively understands the arrangements that bind together the United States, Europe and partners in the Pacific have long imposed unfair burdens on the American people and are rotting to the point of collapse.

NATO and defense commitments in the Pacific, the World Trade Organization and the EU and NAFTA have been sold to Americans and Europeans as promoting security and prosperity, but those don’t. China’s surrogate, North Korea, has nuclear weapons that threaten Seattle; Russia is accomplishing all kinds of mischief; and economic growth has been terrible in the West for two decades.

China poses an existential threat with mercantilist policies designed to seize leadership in high technology from the United States, and apply those capabilities to building a navy and other military assets that can dominate the Western Pacific, project power globally and undermine Western democracy.

Import restrictions and a trade surplus with the United States are central to China’s strategy, because a large protected domestic market is critical for establishing high technology businesses when better products are available in the West. It takes dollars to buy foreign companies to completely fulfil China’s vision and finance influence peddling through foreign aid and its Silk Road global infrastructure initiative.

Instead of supporting Mr. Trump’s efforts to finally compel Beijing to honor the letter and spirt of its WTO obligations, Australia and Japan merrily sell resources and technology to the Chinese industrial juggernaut.

None of our allies spends nearly what we do on defense, and when things get tough our largest allies — Japan and Germany — refuse to modify obsolete post-war constitutions, and that compels American men and women to do the fighting and take the causalties.

Part of the problem is that Japan and Germany practice the kind of mercantilism we rail against in China, and taking a hard stand would put the magnifying glass on their hypocrisy — after China, Japan and Germany enjoy the largest bilateral-trade surpluses with the United States.

What Trump lacks and needs to articulate is not what’s wrong but what America should do next.

Tariffs are short term, crude and disruptive instruments, and if China won’t negotiate and reform to conform its WTO obligations and the simple norms of fairness, then the United States must be prepared to impose a post-WTO system of managed trade.

Impose is the correct word, because President Xi Jinping has firmly established he will not make meaningful concessions, and past Chinese promises have proven worthless anyway.

America should throw Britain a lifeline as it leaves the EU — no comprehensive, post-Brexit arrangement with a German-dominated dying continent will work. And it’s time to contemplate genuine free trade with other EU members smart enough to bolt, too.

Only then can we compel Germany and Japan to pay up and take real risks in defense of liberty, and finally open their markets so Asia, Europe and America can grow together again.

Peter Morici is an economist and business professor at the University of Maryland.

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