If You Can’t Beat Them, Then What?

During my 15 years on the U.S.-China Economic and Security Review Commission, we periodically held hearings on China’s economic tactics and how they were disadvantaging U.S. companies and American workers. Witnesses would present a long litany of China’s actions—subsidies, forced technology transfer, protectionist rules and standards, etc.—that hurt us, and how these were either violations of World Trade Organization (WTO) rules or should be.

Inevitably, one of the commissioners would ask, “Well, what should we do about it?” The answer, surprisingly, was often the same—we should do what they’re doing, bringing back memories of the famous restaurant scene from When Harry Met Sally—“I’ll have what she’s having.” In other words, if you can’t beat ’em, join ’em.

At the time, nobody paid much attention to the commission or its recommendations (with good reason, but that’s another story). But times have changed. The U.S.-China relationship has deteriorated, American public opinion about China has nosedived, politicians are following the people or vice versa, and members of Congress compete to produce the most outrageous anti-China legislation.

Some of this, like a TikTok ban, is hysteria and domestic politics (Republicans trying to label Democrats as soft on China; Democrats fighting back with tough proposals of their own). But the running faster part—the Inflation Reduction Act and the CHIPS and Science Act—are essentially echoes of Chinese economics with an American twist. Indeed, a CSIS colleague said that he had talked with a Chinese official who commented that the United States was now doing to China what China had been doing to the United States for years.

Adam Posen, president of the Peterson Institute for International Economics, recently published a piece in Foreign Policy, arguing that this is bad policy, focusing on the protectionist elements that promote reshoring and domestic manufacturing, while acknowledging there are some constructive parts. He makes an eloquent case for grounding policy in basic, long-standing economic principles, but as a non-economist, I leave it to you to read the article and decide for yourselves if he is right.

My concern about the U.S. approach is its impact on the multilateral rules-based trading system and the bad precedents it sets that other countries will surely follow. There are two culprits here. One is simply protectionism—the desire to promote U.S. industries by protecting them from competition. The most recent examples are the domestic content and U.S. assembly production requirements in the Inflation Reduction Act, where substantial tax credits are provided only for items assembled in the United States with substantially North American parts, components, and materials.

The other culprit is the conflation of trade policy with national security, seen in the still standing Trump tariffs, the “guardrails” in the CHIPS and Science Act designed to keep U.S. companies from interacting with their Chinese counterparts, the ban on Chinese minerals in the manufacturing of EV batteries, and anticipated restrictions on outbound U.S. investment.

There is a role for national security in trade policy, and both WTO rules and U.S. law provide for it, but the Trump administration and now the Biden administration are abusing it by taking actions where the link is tenuous. The United States lost on this issue at the WTO on the steel and aluminum tariffs, but instead of respecting the rules, it thumbed its nose at them. The United States lost in an auto rules dispute with Mexico, said it would comply, but so far has not done so. If the restrictions in the IRA are litigated, we may lose there as well, and I fear our response will be the same.

Unfortunately, this disrespect for the rules is contagious. In the Canadian dairy case, which the U.S. won, Canada is playing the same game—claiming compliance but not actually doing it. Mexico is stalling on U.S. complaints about their energy policy and proposed restrictions on genetically modified corn. The French, to no one’s surprise, have picked up on this in arguing for more subsidies for EU manufacturing and more local content requirements for public procurement. India once again has exceeded WTO limits on government support for rice and wheat, to the irritation of the United States and five other countries. China, of course, has long been an outlier as far as rules are concerned; indeed, the justification for U.S. actions is increasingly that we have to counter China.

The United States is not responsible for all these other actions; in fact, the administration and the Congress would argue it is the others that inspired us. But the United States, at least for the time being, remains a leader in the system, and what we do quickly becomes the excuse others use to embark on their own protectionist excursions.

Of course, there are larger geopolitical culprits disrespecting law and order, notably Russia. Trade is only part of the landscape, but the overall result is that we are rapidly moving into an era where the center is not holding, respect for international law and order is declining, it’s every country for itself, and the large bully the small. While the United States stands tall in opposing Russian and Chinese military and political aggression, it is failing to do the same in the world of economics and is becoming part of the problem rather than the solution. This is ironic for an administration that claims multilateralism as a fundamental principle, but for the White House it’s beginning to look like the term means getting others to do what we want without any discipline or sacrifice on our part. In the long term, that will not end well, either for the system or for us.

WilliamReinschholds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.