The former U.S. Trade Representative, Robert Lighthizer, under former President Donald Trump, published a book titled There Is No Free Trade: Changing Course, Dealing with China, and Helping American Workers. This book is expected to serve as a guide for Republican presidential candidates seeking a policy toward China, as well as for economic nationalists across the board. The main highlights of the book are as follows:
Washington’s Policies
The author outlines several U.S. economic policies toward China, summarized below:
1. Changing the U.S. Trade Stance Toward China:
According to the author, challenging the prevailing economic or political orthodoxy requires change. For the past two decades or so, merely questioning the idea that free trade is an absolute good has been taboo in the U.S. However, this changed in 2018 when tariffs were imposed on China. This sparked a broader debate about the relationship between trade and diplomacy and what a post-neoliberal world should look like. The author argues that China remains the greatest geopolitical threat the U.S. has faced, possibly since the American Revolution, surpassing even Nazi Germany and the Civil War secessionists.
2. Adopting Protectionist Policies Against China:
The author references a 1985 speech by former President Ronald Reagan, in which he said, “Free trade is – by definition – fair trade. But when domestic markets are closed to others’ exports, free trade no longer exists. When governments subsidize their manufacturers and farmers to dump goods in other markets, free trade no longer exists. When governments permit counterfeiting or copying of American products…free trade also no longer exists.” These were some of the arguments used against China during Trump’s presidency, as well as in the decades preceding it.
3. Pushing for “Strategic Decoupling” from China:
The book’s main section offers a provocative narrative of how Lighthizer waged the U.S.-China trade war and other trade battles. He also proposes truly radical policy recommendations to decouple the U.S. from China, calling for high tariffs, ending the benefits China received from the U.S. after joining the World Trade Organization (WTO), cutting investments between the two countries, banning Chinese social media companies, and halting technological cooperation. These proposals are intended to remain in place until China’s trade surplus of around $400 billion disappears. In other words, these recommendations could last for decades, if not forever. Lighthizer calls this “strategic decoupling,” but in reality, there is nothing strategic about it—it would sever ties between the two largest economies in the world, with potentially catastrophic consequences.
4. The U.S. Economy’s Need for Diversity to Gain Allies:
While many may disagree with Lighthizer’s arguments about the need to rebalance the U.S. trade deficit with China, his points about the need for a large, diverse economy like the U.S. to both produce and consume in order to maintain global influence are becoming increasingly clear. The risks of global financing and fragile supply chains have become more evident. Therefore, the U.S. now needs more trade and must use its economic power to win friends, so that other countries favor it over China. For many countries, trade is really about getting the cheapest products for consumers.
5. The Dilemma of Lowering Tariffs on China:
The book also recalls Trump’s televised criticism of Lighthizer during a meeting with Chinese negotiators, where Lighthizer pushed for a “Memorandum of Understanding” with Beijing. In trade terms, such a memorandum is a deal that doesn’t require congressional approval, but in Trump’s real estate world, it meant a preliminary agreement. While serving as the U.S. Trade Representative, Lighthizer used tariffs on a scale unseen since the 1930s to secure a trade deal that included numerous U.S. concessions. Instead of strategically decoupling from China, the Phase One agreement envisioned increasing trade between the two countries and setting detailed procedures for dispute resolution. Ironically, Lighthizer presented a roadmap for continued engagement with China, not decoupling. The Biden administration has not yet had the political will to build on Lighthizer’s idea. Another irony is that Lighthizer praised Biden’s team for not taking the bait of lowering tariffs in hopes of getting China to import more American goods.
6. Washington’s Reliance on Itself to Confront China:
Lighthizer predicted that, when confronting China, the U.S. alone still had enough economic weight to force Beijing to change. For years, the U.S. largely resolved trade disputes through the WTO, which takes years to make decisions. But instead of waiting so long, Lighthizer dusted off Section 301 of the U.S. Trade Act, which occasionally allows the president to impose tariffs in response to unfair trade practices without going through the WTO. Indeed, Lighthizer found many Chinese actions that met this definition, including intellectual property theft, pressure on U.S. companies to hand over technology, and regulations that harmed American agricultural exporters and other producers.
The Escalation of War
The author heavily focuses on the trade war between Washington and Beijing, highlighting several key aspects.
The Negative Consequences of the Trade War Between the Two Countries: According to the author, by the end of the three-year-long trade war, Trump had imposed tariffs of up to 25% on three-quarters of all Chinese goods sold to the United States. Lighthizer provides a detailed account of the negotiations that led to a paper agreement in which China agreed to enhance cooperation in intellectual property protection, end discriminatory regulations, significantly increase purchases of American goods, and resolve disputes. The U.S. kept nearly all its tariffs in place, stating that it would only remove them once China fulfilled its commitments.
Although China largely met its obligations, as Lighthizer acknowledges, he now opposes any rollback of tariffs. However, he does not address the shortcomings or failures of the deal, nor the times when Trump supported halting strict measures when the stock market began to collapse due to the trade war. A broader narrative of the trade war reveals that neither the U.S. nor China emerged as winners. Both economies suffered, though China was hit harder as it is more dependent on trade. Nevertheless, the U.S. Trade Representative’s office continues to complain about Chinese coercion, technology theft, and other misdeeds.
The Benefit to Third Countries from the Trade War: Vietnam is considered one of the beneficiaries of the trade war between Washington and Beijing. According to calculations by the management consulting firm Kearney, in 2021, China shipped $50 billion less in manufactured goods to the U.S. than it did in 2018, as tariffs on China increased. During the same period, Vietnam, free from those American tariffs, increased its shipments of factory goods to the U.S. by $50 billion. These additional export revenues helped Vietnam build industrial complexes, ports, and roads, and attracted higher-wage industries such as electronics. However, another irony of the trade war is that many of Vietnam’s new export companies are Chinese-owned.
Factory Workers Affected by Tariffs: Regarding helping factory workers, the tariffs had the opposite effect. The U.S. was adding manufacturing jobs before the pandemic-induced recession of 2020, but after the first tariffs on China were imposed in July 2018, growth in manufacturing jobs slowed and eventually stalled even before the pandemic hit the U.S. There are, of course, many reasons for the economic decline over the past few decades. While China’s shock to American labor markets is one of those reasons, other factors include the decline of vocational training, the controversial labor relations model, and the reduction of public and private investment in industrial facilities.
The Difficulty of Eliminating the U.S. Trade Deficit: Lighthizer clings to tariffs, proposing to use them to entirely eliminate the massive trade deficit between the U.S. and China. But doing so would require a level of protectionism far greater than what Lighthizer advocated while in power. The trade war showed that 25% tariffs somewhat reduced the trade deficit with China, but the overall trade deficit continued to rise. Although Lighthizer does not specify a number in his book, the tariffs he envisions would likely need to be much higher than 25%—perhaps more than 100% or higher—and would have to be applied broadly.
Such large-scale tariffs could devastate wide sectors of the U.S. economy that rely on imported parts from China. While Lighthizer argues that income from tariffs would add to the U.S. treasury, the trade war shows that this would not be the case. If tariffs are high enough to entirely stop imports, there would be no customs revenues to collect. The additional income from the 25% tariffs the U.S. imposed went to support farmers whose sales collapsed after China retaliated with its own tariffs.
Lighthizer does not consider the possibility of Chinese retaliation in sectors where the U.S. relies on imports to meet environmental and other goals. China recently hinted at the kind of pressure it could exert when it announced it would restrict exports of gallium and germanium, which are used in advanced microelectronics. China dominates the markets for solar energy equipment, wind power, electric car batteries, and metals used in electronics, among other industries. In his book, Lighthizer argues that eliminating the trade deficit is crucial for helping workers and restoring American strength, but he provides little evidence to support his case.
The U.S.’s Contribution to China’s Rise: Lighthizer believes that the primary benefit of globalization has been enabling China’s rise. Therefore, it is not an exaggeration to say that the largest navy and the largest military in the world were built with American dollars, but not within the United States. In other words, expanded trade has meant that the U.S. sends hundreds of billions of dollars to China, which China has used to grow and prosper. However, Lighthizer does not consider in his critique of globalization what might have happened if the U.S. had kept China out of the global trade system. For example, it is not hard to imagine a still-impoverished China, resentful of the U.S., seeking to incite revolution and arm America’s adversaries with weapons, including nuclear weapons, as it did with countries like Vietnam and North Korea before rapprochement in 1970.
In conclusion, the trade war showed that the U.S. is heavily dependent on global supply chains, technology, and other vital goods. However, American companies were slow to realize the need to diversify their manufacturing away from China. Even so, the correction is underway, though the question now is how this correction will be managed. Thus, the principle of “no free trade” could spoil the remaining relations between the world’s two largest economies.
Source:
Robert Lighthizer, No Trade Is Free: Changing Course, Taking on China, and Helping America’s Workers, Broadside e–books, Northampton, June 27, 2023.
