Free Trade, China, Ukraine, and the Biden Administration

Biden's tough talk on trade has Paul Krugman nervous. Trump, you may recall, imposed a bunch of tarriffs that he justified on national security grounds, including one on aluminum from Canada. Biden has rescinded the ones on our North American and European allies but kept the ones on China:

Some of the tariffs Trump imposed are still in place, and on Friday the World Trade Organization, which is supposed to enforce rules for global commerce, declared that the official rationale for these tariffs — that they were needed to protect U.S. national security — was illegitimate.

And the Biden administration, in turn, told the W.T.O. — in startlingly blunt language — to take a hike.

This is a very big deal, much bigger than Trump’s tariff tantrums. The Biden administration has turned remarkably tough on trade. . . .

Some of this is about Russia. Russia's use of natural gas as a weapon has shown the dangers of relying on violent dictatorships for essential goods. Plus every time somebody opens up a Russian or Iranian drone downed in Ukraine they find lots of components from western companies; a modern Russian tank has dozens of components made in western Europe, including vital ones like the lenses in the sights.

But this is really being driven by fear of war with China. People have been asking themselves, what happens to the world economy if China attacks Taiwan? And the answers are very bad. Taiwan has a monopoly on many kinds of high-end computer chips, so that would likely be cut off, plus China makes a large number of cheaper chips and leads the world in assembling electronic gadgets. I have seen all sorts of apocalyptic language describing what would happen if this was all cut off. Krugman:

China isn’t Russia, but it’s also an autocracy (and seems to be becoming more, not less, autocratic over time). And the Biden administration is trying to limit China’s ability to do harm, with a special focus on semiconductors, which play such a central role in the modern world.

On one side, America is now subsidizing domestic production of semiconductors, aiming to reduce reliance on China among other suppliers. Even more drastically, the U.S. has imposed new rules intended to limit China’s access to advanced semiconductor technology — that is, we’re deliberately seeking to hobble Chinese technological capacity. That’s pretty draconian; you can see why I’m a bit nervous.

I am not nervous, and I support all of this. There used to be two arguments here: on the one side, that you shouldn't trade with your enemies and make them richer and more powerful; on the other, that trading with people is how you stop them from being your enemies. I am naturally on the side of trade and friendship. But this is clearly not working with China; the richer they get, they more belligerent they get, and worse our relationship with them becomes. Over the past decade China seems to have gotten worse in every way. So over to Plan B, and try to insulate our economy as much as possible from their machinations.