Unfortunately, U.S. election season is upon us, and perhaps it would be useful if I documented the presidential candidates' statements on trade. That's mostly going to feature the Republican presidential hopefuls (and hopelesses, if that's a word!), but if Biden says anything new and interesting I'll mention that too.
Here was leading contender Ron DeSantis being interviewed on Fox News last night:
Kayleigh McEnany:
Some hawkish folks on China, on the right, say we need to decouple from China. Is it your view we need to decouple from China?
Ron DeSantis:
Kalyeigh, we are dependent on China for major parts of our economy. You saw it during COVID. Almost everything we needed came from China. So I think we need to reestablish our economic sovereignty. I think we need to produce more critical items here in the United States. And I think they have a huge amount of leverage over us because of, really, policy choices that have been made over many decades. You know, when China was put into the World Trade Organization and granted most favored nation status almost 25 years ago, we were told by DC elites that this would make China more free, more democratic, and make the world better. In reality, it hollowed out parts of our country. It made China very rich, and what did Xi used that money for? To build up more military capacity. He now has grand ambitions, not just in the Pacific, but even in our own hemisphere, and we see news where China is going to be working with Cuba to establish eavesdropping, maybe a military outpost. That's a huge, huge threat to this country.
So yes, we need to declare independence from China economically, and we need to make sure that we have the ability to project the appropriate strength in the Pacific, to work with our allies to deter China. China understands the language of strength. And I think what Joe Biden has done since his first day in office, he's projected weakness. A lot of bad actors around the world see that and that really whets their appetite to be able to do things that are going to be very harmful for the world.
Kayleigh McEnany:
Would you be willing to use tariffs to get China to the negotiating table?
Ron DeSantis:
Yeah, I would. I think that what you need to do, if you're going to target a particular industry in China like that, you need to make sure we have incentives here in the United States to bring that industry home. It will raise the price of the China product, but we got to make sure it's economical here in the United States. So you need to couple that with tax incentives, tax credits, and even for things that are really important like semiconductors, you know, I would be willing to support government support on that. I typically wouldn't do that because, you know, generally the market does. But I think some of these things are so important for national security, we got to be willing to lean in on that.
My sense of DeSantis is that he was traditionally a free market person, but he has tried to become more of an interventionist populist. On China in general, everyone is trying to out-hawk each other, and DeSantis' statements here on decoupling are not surprising. We don't know what they actually mean in terms of degree, of course. It probably won't be complete decoupling. But just saying "decoupling" -- and throwing in "independence" and "sovereignty" -- is probably the safe play for any Republican candidate.
(As a side note, on the substance of what DeSantis said, as I like to bring up there's an interesting counterfactual of how China's economic integration with the U.S. and the world would have gone if the U.S. hadn't been distracted by the War on Terror.)
And then on tariffs specifically, he sticks with the current establishment view that tariffs get China to the table and government subsidies are needed for "security"-related sectors such as semiconductors. Does any of this work? We're going to do it regardless, and in a few years we can see how it all played out!