President Joe Biden was correct to focus Americans on China as the pacing challenge to national security and prosperity. But responding implies adjusting a wide array of policies with each affecting many of the others’ objectives.

Tariffs are a good example.

The automobile industry is central to the prosperity of America’s industrial heartland and vulnerable to Chinese competition.

Car buyers are pushing back on Electric Vehicles thanks to range anxiety and price.

Biden has not delivered on a promised network of 500,000 EV chargers. Detroit has been slow to put forward inexpensive, affordable EVs.

Emerging battery technology is getting close to eliminating the cost advantage of the internal combustion engine vehicles. At that point, the private sector will be incentivized to succeed with private chargers where Washington’s bureaucracy has failed.

The Obama and Biden Administrations have provided tax credits and other incentives to promote EV development but nothing as substantial as China’s $231 billion in subsidies.

Consequently, Biden’s tariffs are vital to leveling the playing field, but those force the hand of our European security partners. Already absorbing half of China’s EV exports, they become an even bigger target and must respond with their own tariffs.

The same happened with the Trump steel tariffs. And that joins the broader issue of the role of trade policy in strategic competition with China.

Two schools prevail among Washington policy wonks. Those advocating complete victory over China through the kind of pressures that brought down the Soviet Union. And those embracing the Biden policy of managed competition that seeks to prevent unnecessary escalation that could spin out of control and precipitate war.

The former is based on a false premise. China is more ethnically unified and economically stronger than the old Soviet Union, therefore less likely to buckle under the kinds of economic pressures created by President Ronald Reagan’s military buildup.

The latter targets selected industries like EVs and semiconductors and is too limiting.

China has prioritized a broad range of manufacturing and exports to resurrect an economy beset by a property crisis. That broadly frustrates trade based on comparative advantage.

Its economy is growing at bit less than 5% this year while the West struggles to accomplish half that pace. That helps China finance a military buildup in the Pacific, which the United States is challenged to match with Russia and Iran allies creating mischief elsewhere.

Beijing’s paranoia is driving down foreign investment and the yuan.

The World Bank’s estimates the yuan-dollar exchange rate that would equate costs for producing goods in the United States and China is about 3.81, not the current 7.09.

That undervaluation provides a huge across-the-board export subsidy and makes former President Donald Trump’s proposed 60% tariff appear less radical.

Europeans are more cautious about losing access to Chinese markets to retaliation by Beijing.

A 60% U.S. tariff would divert Chinese exports to their markets. The EU could either impose large tariffs too or try to cut a managed traded deal with Beijing. The latter would isolate the United States and undermine broader U.S. security interests.

Whatever we do, we need to bring our allies along.

A 60% tariff could raise overall U.S. prices by 1.2%, tax the prosperity of ordinary citizens and disadvantage U.S. businesses that rely on Chinese components in domestic and world markets.

Solid empirical research indicates when our allies follow suit — for example, Trump’s steel tariffs — Chinese producers, lacking other markets to dump excess capacity, cut prices. They absorb part of the tax and ease the burden on U.S. customers.

When our allies don’t follow, U.S. consumers bear the full burden of the tax.

If U.S. policy encourages our allies to participate, as they are doing on steel, EVs and semiconductors, and the full amount of the tariff is returned to households through a tax cut favoring lower- and middle-income Americans, then those groups would on average come out ahead.

U.S. manufacturers would not be disadvantaged in domestic and other western markets by higher priced Chinese components, because everyone would be paying about the same.

By neutralizing Chinese mercantilism, trade would be based more on comparative advantage—enabling a more efficient allocation of global resources and stronger western growth.

To encourage this outcome, tariffs on imported Chinese components should be rebated on U.S. exports and applied to the Chinese content in U.S. imports from third countries, but only from jurisdictions that don’t impose comparable tariffs on Chinese products.

If other nations participated, then Chinese mercantilism would take a mighty blow. Its excess capacity would be turned inward, and Beijing would bear the kind of economic pressure President Reagan put on the Soviet Union.

It would not bring down the regime, but the tariffs would surely make the autocrats in Beijing less capable of financing strategic mischief.
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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.