Over a decade ago, I described the competition we’re seeing today from China and urged an American counterstrategy focused on our unique strength in creativity and innovation in my best-selling book, The Comeback.
My premise was correct. China has emerged as an economic behemoth, investing strategically in new technologies and cornering the market on many vital materials, components, and finished products, while expanding its global influence.
China’s COVID policies, coupled with a recent crackdown on some of China’s most successful tech companies, give the U.S. a window to recalibrate our national strategy. By rising to meet the challenge now, we can ensure American democracy thrives. In short, if we do it right, our children and grandchildren will enjoy the same freedoms we enjoy today.
While Congress and the Biden Administration have chosen to invest in certain key technologies to compete with China, this cannot be our only strategy. Our trade and tech policy must recognize that our allies, including friendly democracies like Japan, Canada, Australia, New Zealand, and South Korea, also value these freedoms.
We must strengthen our relationship with our allies by reducing barriers to trade and investment.
Five years ago, the U.S. initiated multiple trade wars, fueling inflation and shifting production to new locations, many of which do not have free trade agreements with the U.S.
American leaders from both parties treat trade as a zero-sum battle and trade policy as a vehicle for scoring political points at home and abroad. Our isolationist approach to trade is moving in a more dangerous direction–making what should be a team effort with our friends a go-it-alone “Hunger Games” strategy.
Isolationist policies aren’t just a drag on American businesses and consumers. They are creating friction with some of our most important allies. The EU, Japan, and South Korea have expressed concern about “discriminatory elements” in President Biden’s signature Inflation Reduction Act (IRA), signed into law in August. The IRA offers tax breaks for electric vehicles and sustainable energy equipment produced in North America but makes no similar allowances for other U.S. trading partners. Those provisions could even violate World Trade Organization rules. They make no sense: We can’t exclude key trading partners from a growing U.S. market like electric vehicles and in the same breath talk about the values and principles that inform our trade relationships!
Our approach to tariffs can be compared to the Smoot-Hawley tariffs that got us into the Great Depression almost a century ago. You don’t need an economics degree to recognize that tariffs aren’t paid by foreign countries, whether they’re friends or foes. They’re taxes paid by American businesses–and ultimately consumers.
Since 2018, tariffs have cost U.S. tech companies over $32 billion and stalled growth in production and jobs. “Make in America” and “Buy America” requirements may sound good in theory–but the reality is that higher tariffs and less competition result in higher inflation. This means more expensive and even lower quality goods and services for American families, businesses, and our federal and state governments. Even eliminating the China tariffs would help us more than it would China by dramatically lowering U.S. inflation and cutting our Consumer Price Index by 1.3 percentage points in the medium and long term.
As a nation, our economy was built on strong and mutually beneficial trade relationships that encourage innovation and lower costs for businesses and consumers. We host regular summits with our trade partners to align on trade policy and–at least in theory–avoid unfair or unilateral trade practices. But too often, we haven’t lived up to our principles and imposed tariffs on U.S. allies. Instead, our politicians should understand that our common belief with our allies in liberty for our citizens and market economies for our businesses drives our shared desire for free trade and investment.
We can and should be using trade policy tools to advance our shared global objectives. To help Ukraine in the face of Russia’s unprovoked invasion, the EU suspended all tariffs on imports from Ukraine for one year. The U.S. took a small step in the same direction, suspending tariffs on Ukrainian steel–but our administration can offer additional support through open trade with Ukraine. By reducing trade barriers between the U.S. and its allies, we can help advance new technologies to make the world a better place–from combating climate change to making our societies healthier.
And when countries undermine free and fair trade through intellectual property theft or forced technology transfers, we can work with allies to impose consequences. For example, the U.S. has been working with the EU and Japan for several years on new rules to address China’s anti-competitive trade practices. The U.S. and its allies are also working to align their controls on exports of critical technologies to our adversaries.
Partnerships between the U.S. and our allies are built on trust. When our political leaders impose tariffs on allies or play favorites with domestic companies, we send the wrong signal: that our relationships and trade agreements are no more than talk and tattered paper.
The Biden Administration must instead send the right signal to the world by working with our allies to strengthen the rules-based international trading system, remove trade barriers, and negotiate more trade agreements.
Gary Shapiro is president and CEO of the Consumer Technology Association (CTA), the U.S. trade association representing more than 1,500 consumer technology companies, and a New York Times bestselling author. He is the author of the book Ninja Future: Secrets to Success in the New World of Innovation. His views are his own.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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