Only Congress can end the China trade war quagmire

The Trump administration and China plan to resume high-level talks in October on the dispute over Chinese interests’ use of American intellectual property, but no one is optimistic that the escalating trade war will end anytime soon. According to President Trump, that would be just fine.

By all accounts China is feeling the pain of U.S. tariffs, and Trump points to the tens of billions of dollars in extra revenue that his tariffs are raising for the U.S. Treasury. “We don’t need China and, frankly, would be far … better off without them,” the president tweeted in August. But a growing number of Americans beg to differ, and members of Congress have already introduced legislation to curb the president’s use and abuse of current trade laws. 

If this were a real war, we would call it a quagmire with mounting casualties. U.S. manufacturing output and employment growth have slowed sharply in recent months, while business investment slumped in the second quarter. A new U.S. Chamber of Commerce analysis found that 43 percent of Fortune 500 CEOs expressed concerns about tariffs or trade uncertainty in recent earnings calls.

First in the line of fire in the tariff war have been American importers and consumers. Trump tariffs will soon hit the clothing, shoes, furniture, household appliances and consumer electronics imported from China that make life better every day for tens of millions of American households, especially lower-income families that spend a higher share of their budgets on tradable goods. A study by the New York Federal Reserve estimates the Trump tariffs will soon be costing U.S. households more than $800 a year.

For U.S. companies, the tariffs on imported materials and components from China are disrupting long-established supply chains, raising production costs, and making their final products less competitive in global markets, with no quick or obvious alternatives available.

The trade war is also costing American exporters market share in the world’s second-largest consumer market. Last year, China was the fourth-largest market for U.S. exports of goods and services, behind only the European Union, Canada and Mexico. China is (or at least was until recently) a major purchaser of U.S.-made passenger vehicles, aircraft, semiconductors and chemicals, as well as U.S. farm products.

American companies are also at risk of losing market share for their operations inside China. In 2017, according to the Bureau of Economic Analysis, U.S. multinational companies sold $375 billion worth of U.S.-branded goods and services through their affiliates in China, returning $25.9 billion to the United States in profits. The next phase of the trade war could see China turning the screws on those companies with discriminatory regulations, forcing U.S. firms to cede further market share to their international rivals. 

Another toll from the trade war could be higher interest rates as Chinese investment in the United States falls. The flip side of the bilateral trade deficit with China has been a steady inflow of Chinese capital that helps to finance the U.S. government’s insatiable appetite for debt. Whatever dollars the Chinese don’t spend on U.S. exports, they’ve spent buying U.S. Treasury bonds. That investment has reduced long-term interest rates in the United States, lowering the federal government’s borrowing costs while also reducing mortgage rates for millions of U.S. homeowners.

Congress needs to reassert its authority over trade policy before the Trump administration’s commercial war with China can inflict further damage on the U.S. economy. The Senate Finance Committee, under Chairman Chuck Grassley (R-Iowa), plans to consider legislation this fall that would curb the president’s power to impose tariffs by executive fiat. Proposals from Sens. Rob Portman (R-Ohio) and Pat Toomey (R-Pa.) seek curbs on presidential use of Section 232, the 1962 trade law designed for national security purposes but abused by this administration to protect domestic steel makers.

The committee’s work is timely and important. The Constitution gives Congress, not the president, authority to impose duties on imports and “to regulate commerce with foreign nations.” As it considers legislation to reclaim that rightful authority, the Finance Committee should also incorporate limits on Section 301 of the Trade Act of 1974, which the Trump administration has also abused to impose its escalating tariffs on imports from China. It should also reign in the scope of the International Emergency Economic Powers Act of 1977, which the president has threatened to use to “order” U.S. companies out of China.

Any legislation should more clearly define the emergencies or national security threats the laws are intended to address, and should include a requirement that Congress approve any trade actions. As our Constitution and Founding Fathers fully intended, trade policy is too important to be left solely to the discretion of the president.

Daniel Griswold is a senior research fellow and co-director of the Trade and Immigration project at the Mercatus Center at George Mason University.