ITIF Supports Administration Efforts to Get Tough on Chinese Mercantilism but Cautions Against Tariffs on Producer Goods

March 22, 2018

WASHINGTON—The Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy, today applauded the Trump administration’s efforts to curb China’s pattern of abusing economic and trade policy to gain an unfair advantage in key industries. But ITIF cautioned the administration against imposing tariffs on producer goods that support U.S. productivity growth. ITIF released the following statement from its president, Robert D. Atkinson:

For far too long, the United States has held the rosy view that it was only a matter of time before China would open its markets and follow international trade rules. The reality is that China has systemically broken its promises and subverted the letter and spirit of WTO rules—and this behavior is getting worse, not better. We, therefore, applaud the Trump administration for taking long overdue steps to address this challenge. In particular, restricting Chinese foreign direct investment until China allows U.S. companies to invest there on fair market terms and countering discriminatory licensing restrictions through the WTO are important steps to begin to roll back Chinese innovation mercantilism.

But it is important for the pushback to be carefully targeted and focused on the steps that will have the most leverage over China so that it doesn’t raise prices and dampen investment in the kinds of machinery, equipment, and other technology that drive innovation and productivity across the economy. While it’s well past time to tell China “enough is enough,” we caution USTR from imposing tariffs, particularly on producer goods like computers. These won’t bring production back to America, but they will raise prices, which will reduce capital investment, lower productivity, and weaken U.S. competitiveness. As ITIF has calculated, imposing 25 percent tariffs on information technology and communications goods alone would reduce U.S. GDP by $332 billion over 10 years.

Furthermore, the U.S. risks winning only a Pyrrhic victory in a one-on-one trade war with China, because the Chinese government is in a much better political position to absorb economic pain—and it can dish out punishment with impunity to hurt the U.S. industries we should care about most. We stand a significantly better chance of countering unfair Chinese trade practices if we form a strong international alliance with allies such as the EU, Commonwealth nations, Japan, and South Korea. We urge the administration to build a strong and committed anti-mercantilist alliance with America’s allies.

For additional background on the unintended consequences of ICT tariffs, see ITIF’s recent report “Why Tariffs on Chinese ICT Imports Would Harm the U.S. Economy,” which found that a broad 25 percent tariff on Chinese ICT products would slow U.S. growth by $332 billion over the next 10 years, and a 10 percent tariff would cost the U.S. economy $163 billion over 10 years.