China and trading partners in Europe and Asia are bracing for President-Elect Donald Trump’s threatened steep tariffs. Weighing U.S. options, he should consider how much the world has changed since he first campaigned on a protectionist platform and the connections between trade and security issues.

The World Trade Organization was already under American assault during the later years of the Obama Administration, when it blocked appointments to the dispute settlement Appellate Body. Mr. Trump continued that policy and now he inherits President Joe Biden’s steep tariffs on electric vehicles, semiconductors and other strategically significant products.

China’ economy is reeling from a property meltdown and erosion in foreign investment.

The EU is stuck in a cobweb of excessive regulations and underinvestment in public infrastructure and private industry—only 4 of the world’s top 50 tech companies are European.

China, Russia, Iran and North Korea have forged a menacing Axis.

Mr. Biden has responded by championing NATO expansion and fostering a latticework of security alliances and technology cooperation in Asia.

To prop up growth, China is flooding western and emerging economies with exports of subsidized manufacturers and thanks to state aid, technology-packed, less-expensive EVs.

China’s mercantilist policies and a cheap currency—the World Bank estimates the yuan-dollar exchange rate that would equate costs for goods in America and China is about 3.81, not the current 7.23— impose trade deficits on the United States.

Those trade flows are hardly fully anchored in comparative advantages, distorts resource allocation and harm rather than aids American growth. Tariffs, properly applied, could offset some of those deleterious consequences.

History indicates tariffs don’t raise domestic prices by their full amounts

The U.S. International Trade Commission estimated tariffs imposed on apparel and auto parts under Section 301 of the Trade Act, which permits presidents to respond to foreign unfair trade practices, raised import prices by 14.5% and 24.5%. But those increased competing domestic product prices by only 3.1% and 1.5%, combined domestic and imported product prices by 4.3% and 2.3% and domestic production by 6.3% and 3.0%.

Mr. Trump raised tariffs on $300 billion in Chinese imports from 2.7% to 17.5% and calamity didn’t follow. The one-time impact on overall inflation was only 0.3%. Until COVID, Mr. Trump’s first term economy accomplished full employment and 2.8% annual growth.

The overall effects of raising tariffs further on Chinese goods would depend on phasing those in over several years, rebating tariffs to exporters, the treatment of third country imports containing Chinese components and the response of allies in Europe.

With steel and EVs, Europe followed suit to limit diversion of Chinese products into its markets. Importantly but little noticed, just prior to the first Trump presidency, the EU substantially raised tariffs on Chinese goods.

China would do as it is now with EVs—look to emerging markets such as ASEAN, and we’d be smart to engage other nations too.

Mr. Trump may be forced to act, because Congress is growing restive. Bi-partisan support is emerging to revoke Permanent Normalized Trade Relations with China, which would impose the high tariffs mostly in place during the 1930s and fashioned for an economy as it was a century ago.

He has suggested that Chinese companies set up production here, but that could meet with state level resistance. Governor Glenn Youngkin recently removed Virginia from consideration for a battery plant by the joint venture between Ford and China’s CATL.

To meet challenges from the Axis in the Pacific, Europe and the Middle East, the United States should increase defense spending from 3% of GDP to 5%.

Tripling the average tariff on Chinese goods—assuming half of Chinese imports phase out—might raise $90 billion. That’s hardly enough for new defense spending or to finance his promised tax cuts.

Increasingly, American growth depends on advanced semiconductors fabricated in Taiwan with equipment made in Europe, and like it or not, Mr. Trump has security interests in both places.

He can threaten the Europeans with tariffs, but he’d be smart to use those to leverage them into increasing and better integrating their defense capabilities with some American backstop.

China is making economic and strategic inroads in emerging economies by exporting more technologically sophisticated products, sourcing raw materials and building ports, railways and other infrastructure.

Broadly taxing U.S. trade with emerging markets, Japan and Korea would only play into China’s Asian strategy, limit markets for U.S. technology products—such as Salesforce’s artificial intelligence agents Agentforce—and reduce American influence with Pacific security partners.

It would be better to establish a U.S. sovereign wealth fund to leverage U.S. private investment in emerging markets and negotiate trade agreements that establish a trading system outside the WTO, without the benefit of Chinese participation, such as with ASEAN.
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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.