Why Europe should put up trade barriers against Chinese goods

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Photo by Rohan Dixit on UnsplashAs regular readers of this blog know, I’m pretty ambivalent about trade barriers as an economic policy. On one hand I think targeted tariffs and other trade barriers can be used to protect strategic industries from surges in underpriced import competition, especially by geopolitical rivals. On the other hand, broad tariffs like the ones Trump has used are generally bad — they hurt domestic manufacturing by making intermediate goods more expensive, they limit scale for domestic companies, etc. And yet I do think that Europe should erect much higher trade barriers — both tariffs and non-tariff barriers — against Chinese high-tech manufactured export goods. The basic reason is that it’s important to protect Europe’s nascent modern defense industry. But I also think that blocking Chinese exports might nudge China to change its economic model to one that benefits regular Chinese people more. In other words, China-Europe trade has some unusual characteristics right now that make trade barriers a much smarter idea than usual. First, let’s talk about what’s going on with the Chinese economy. For the past few years, China’s government has unleashed an unprecedented torrent of subsidies for high-tech manufacturing industries. This — along with structural factors about how the Chinese economy works — has resulted in China making big global market share gains in industries like autos, pharmaceuticals, and shipbuilding. No one knows just how much of China’s market share gains are a result of government support, but as Paul Hannon reports, the OECD estimat…