Ahead of a high-stakes summit with Chinese leader Xi Jinping, Donald Trump’s White House has made clear that it isn’t happy with China’s high tariffs on imported American automobiles. These contribute, it says, to the US’s total trade deficit with China, which was $347 billionlast year. Former Obama economic advisor Larry Summers also brought up the issue in a recent meeting with China’s premier (paywall), Li Keqiang.
While the US taxes imported cars and cars parts at a maximum of 2.5%, China charges tariffs of between 21% and 30%. This gives foreign automakers who want to sell in China a big incentive to manufacture there to avoid the import charge. But China also requires foreign subsidiaries to operate as 50-50 joint ventures with Chinese companies. These, of course, then become classrooms for Chinese engineers to gain foreign know-how.
This isn’t exactly anyone’s definition of “fair” trade, but there is a logic to the situation. The system came into play in 2001, after China joined the World Trade Organization. At the time, Chinese industry was much further behind America’s. The idea was that future rounds of WTO negotiations would lower China’s trade barriers further, but global trade talks have stagnated completely.
Ironically enough, therefore, this “unfair” situation for America is a product of globalization’s stumbles, not the unyielding march forward that the Trump administration portrays it as. And any attempts to convince China to drop its protections will now be coming from the most protectionist American administration in recent memory.