A New Round of Tariffs

The word “tariff” is descended from an Arabic word meaning “notification.” Last week, the United States placed China on notice with a new round of punitive tariffs. The near-term impact of the new measures is likely to be limited, but they raise a host of long-term concerns.

Across the world, a handful of major themes are driving economic strategy. Designing an energy transition to alleviate the consequences of climate change and developing artificial intelligence (AI) to enhance productivity are two of them. Many nations desire to be world leaders in these areas, and their governments have been increasingly engaged in industrial policy in an effort to come out on top.

For China, primacy on these two fronts is not only a long term objective. In the near term, improved exports are key to overcoming a series of economic headwinds that are hindering growth. Beijing has long sought to establish champion firms who can dominate global markets, but this effort has taken on additional urgency amid weak domestic demand and strong international competition.

American trade policy seeks to limit China’s advances in critical industries. The view in Washington is that Chinese sponsorship of production places U.S. providers at a disadvantage, which tariffs are intended to remedy. And having native capacity to produce strategic goods is important to national security. The United States does not want to become overly dependent on Chinese semiconductors or batteries.