It has become fashionable in some Republican circles to champion tariffs, and now the “External Revenue Service,” as part of an “America first” agenda. Supposedly, tariffs will improve the U.S. economy and strengthen the U.S. position on the global stage. Many people also think tariffs can be a good negotiating tool, most recently with Canada and Mexico, and perhaps the Netherlands. But this view of tariffs is wrong.
Tariffs will reduce U.S. influence around the world. High tariffs on Mexico mean Mexican companies will have to pay more to do business with the United States. But they can also increase trade with other countries, especially aggressive ones such as China that are eager to do more business with them. We would be fools not to expect the Mexicans to increase their trade with China if we penalize them for trading with the U.S. Mexico-China trade reached $100 billion last year, almost triple what it was only 10 years ago.
Ask yourself whether you would rather have Mexico produce vehicles for Ford Motor Company and General Motors or for BYD Auto and Dongfeng. Or whether you would rather have South Americans using Facebook, Instagram, Google, and Apple or WeChat, Baidu, and Tencent. Those questions should answer themselves. Yet a handful of influential policy advocates and members of the incoming administration, and President-elect Donald Trump himself, seem unaware of the geopolitical dangers of implementing widespread tariffs.
China has not made significant inroads in Africa, Latin America, and South America by creating tariffs. It made inroads by expanding its trade relations however it could, and the results are telling: China has significant influence around the world through its trade and, thereby, via soft power. While I doubt the wisdom of increasing tariffs on Chinese goods, such a policy could make sense from the standpoint of geopolitical rivalry.
What doesn’t make sense, though, is pushing our allies and other nations away — and into the arms of the Chinese. Yet that is exactly what tariffs and the threat thereof do. In contrast, free trade projects U.S. influence around the world. Although free trade cannot prevent all conflict, it certainly reduces the likelihood of armed conflict. It is an effective and productive method for exerting soft power around the world.
The incoming administration should craft tariff policy with an eye to exerting soft power to counter China’s influence around the world. If Trump wants to counteract threats from China, he should rethink his trade policies. Throwing up trade barriers with Mexico and Canada is just begging them to trade more with China. That’s a poor way to try to contain Chinese influence.
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Although some Republicans worry that blue-collar work and industrial production will suffer under free trade, Trump’s other policies, including lower taxes, lower regulations, and abundant energy, will more than offset the challenges of global competition. These domestic policies will revitalize domestic manufacturing and our economy.
Tariffs, on the other hand, will require more bureaucrats and encourage more special interest lobbying in Washington as thousands of companies send representatives to petition for exemptions. U.S. companies are more than capable of going toe to toe with Chinese companies, especially in a healthy regulatory and tax environment. They just need to be allowed to do so.
Paul Mueller is a senior research fellow at the American Institute for Economic Research.