Robert Reich: The cost of Trump’s trade war (and a better alternative)

This trade war could put us into a recession.

Published May 16, 2019 3:00AM (EDT)

Donald Trump; Xi Jinping (Getty/Photo montage by Salon)
Donald Trump; Xi Jinping (Getty/Photo montage by Salon)

This originally appeared on Robert Reich's blog.

We are now in a trade war with the second-largest economy on Earth.

On Monday, China said it would raise tariffs to 20 or 25 percent on some $60 billion of American goods — already being taxed at 10 percent, in retaliation for Trump’s previous tariffs on Chinese goods.

China’s move came after Trump increased tariffs on $200 billion of Chinese goods to 25 percent on Friday.

Tariffs are paid by American consumers and businesses. They function exactly like taxes. By imposing them, Trump has in effect raised taxes on most Americans by about $800 per household. China’s retaliatory tariffs will raise taxes further.

Worse yet, such tariff taxes are regressive. The middle class and poor pay a larger percentage of their incomes on them than do the rich.

This trade war could also put us into a recession. The world’s other big economies are slowing. In 1930, congressmen Smoot and Hawley championed isolationist tariffs that President Herbert Hoover signed into law. They deepened the Great Depression.

Trump says the tariffs are necessary in order to get a deal with China in which China stops taking the technology of American business.

In reality, those “American” businesses are mostly global. Their technology doesn’t belong to the United States. It belongs to those corporations and their shareholders. They develop and share it all over the world.

Up until now, most of these corporations have been willing to share their technology with China in joint ventures with Chinese companies because that’s the price of entering the lucrative Chinese market. They still come away making lots of money.

John Bolton, Trump’s national security adviser, has said the real issue is “a question of power,” and that China’s theft of intellectual property has “a major impact on China’s economic capacity and therefore on its military capacity.”

But if this is the real motive, there’s a far better way to protect national security that doesn’t impose such a large regressive tax on Americans and risk a global recession.

Trump should prohibit American corporations that possess technologies that are critical to national security from sharing them with China — even if that’s the price of gaining access to China’s lucrative market,

Bar them from entering into joint ventures with Chinese corporations, prevent them from teaming up with Chinese state-owned companies, and demand that they guard their technology.

American-based corporations might have to sacrifice some profits, but that’s too bad. It’s a far smaller price to pay than the cost of this global trade war.

By Robert Reich

Robert B. Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written 15 books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "The Common Good." He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." He's also co-creator of the Netflix original documentary "Saving Capitalism."

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