New tariff plan aims to eliminate US dependence on Chinese supply chains

In an article published by Newsweek, the landscape of US-China trade relations has recently undergone a significant transformation, prompting calls for a reevaluation of longstanding policies.

After more than two decades of "normal" trade relations between the United States and China, perspectives on the value of this relationship have shifted dramatically—and for good reason. Following China's acquisition of Permanent Normal Trade Relations (PNTR) status in 2001, the US experienced a loss of millions of manufacturing jobs and tens of thousands of factories, leaving behind damaged communities and families.

Consequently, the US share of global manufacturing fell from 25 per cent in 1997 to 17 per cent in 2019, leading to significant supply chain vulnerabilities due to heavy reliance on Chinese imports. Acknowledging the untenability of this situation, a growing coalition of policymakers now advocates for revoking China’s PNTR status and implementing permanently higher tariffs. 

Bipartisan recommendations from both the House Select Committee on Strategic Competition with China and the US-China Economic and Security Review Commission have suggested ending normal trade relations with China. This concept is also featured in the 2024 Republican Party Platform. American Compass has released a report aimed at assisting policymakers in these efforts, with new legislation proposed by Senators Tom Cotton, Marco Rubio, and Josh Hawley to formalize this strategy.

The legislation seeks to rescind China’s PNTR status, establish a new tariff schedule specifically for China, and impose 100 per cent tariffs on goods critical to US national security. While China is not the only nation engaged in trade practices harmful to US workers and industries, its systematic, extensive, and effective mercantilist policies have uniquely enabled it to dominate key sectors over the past two decades. 

For instance, China now controls advanced battery supply chains, processing nearly all graphite for anodes, and accounts for over 70 per cent of global rare earth elements, 90 per cent of their processing, and more than 95 per cent of dry cargo and refrigerated containers. This reliance on China poses a significant threat to US economic security and defense procurement.

Furthermore, China has not demonstrated the reciprocal goodwill that many politicians, economists, and business leaders anticipated when advocating for its PNTR status. Instead of expanding market access and reducing state control over industries, China has engaged in technology theft, upheld market restrictions, and increased state subsidies, particularly through initiatives aimed at dominating the 21st-century economy, such as Made in China 2025, Strategic Emerging Industries, and Military-Civilian Fusion programs. 

These policies have exacerbated the US trade deficit, undermined the industrial sector, and created a reliance on China for critical supply chains—a reality starkly highlighted during the COVID-19 pandemic. Countries with normal trade relations typically enjoy an average tariff rate of around 3 per cent. This meant that until President Donald Trump implemented tariffs in response to China's trade practices in 2018, China benefited from the same low tariff rates as allied market economies like the UK and Australia. The Trump administration played a crucial role in initiating efforts to tackle China's trade abuses.

Unfortunately, China has failed to uphold the "Phase One" deal reached at the end of Trump's presidency, and the Biden administration's cautious approach of "derisking" select advanced sectors has not adequately addressed the broader challenges posed by China. The US can no longer depend on negotiations or targeted actions to rectify the situation; it must undertake a fundamental reset of trade relations with China.

In light of this, American Compass proposes implementing a phased 100 per cent tariff over five years on a wide range of strategic goods from China to completely eliminate US dependence on these products. This would include military and dual-use items, advanced technology goods, and essential components for American infrastructure in sectors like energy, health, and transit. Additionally, a default tariff rate of 25 per cent should be applied to non-strategic goods from China, and the de minimis loophole allowing tariff-free entry for packages valued under $800 should be eliminated. 

These measures would encourage companies to shift their supply chains back to the US or to more reliable trading partners. This proposal aims to build on the achievements of President Trump's Section 301 tariffs, which effectively reduced imports of affected goods and generated significant revenue without causing a substantial rise in consumer prices. Although the tariffs proposed by American Compass would be higher and cover a broader range of products, they are expected to generate at least $50 billion in additional annual revenue, which could help mitigate any retaliatory measures from China. This revenue could also be allocated to initiatives such as a national development bank, research and development, and workforce training to support the reshoring of US industry. 

While additional policies will be necessary alongside the new tariff rates—such as those aimed at combating Chinese tariff evasion—permanently increasing tariffs on China is crucial for reducing the US trade deficit, revitalizing domestic manufacturing, and enhancing American competitiveness in the long term. Critics may argue that this approach deviates from the ideals of "free trade" and international norms, but the truth is that China has never fully embraced these frameworks. 

The "trade war" between the US and China has been ongoing for decades, and the United States must build upon its recent efforts to respond effectively. Although there may be some short-term disruptions, American workers and industries will ultimately benefit through improved job quality, higher wages, and more dependable supply chains. Policymakers correctly acknowledge that the US cannot maintain its current economic trajectory if it hopes to compete with China. 

The United States has both the right and the responsibility to define its national interests and shape its economy to protect and advance those interests. Continuing to treat the trade relationship with China as "normal" will only further undermine our economy, security, and citizens.

By Naila Huseynova