No matter who takes control of the White House and Congress this fall, one aspect of trade policy is likely to remain: the U.S. government's hard-line protectionist stance toward China. But some trade experts predict that an America First model of imposing tariffs on adversaries, as President Biden did this week, will backfire.
Critics of tariffs and export controls argue that not only can they exacerbate inflation and depress economic growth, but they are also likely to fail for simpler reasons. Chinese companies may think regulations will slow down their business, but they are finding ways to beat them. .
Alex Durante, an economist at the Tax Foundation, a nonpartisan think tank that works with policymakers in the United States and Europe, put it bluntly.
Huawei has shown that companies can find workarounds. Last year, the Chinese telecommunications giant announced the Mate 60, a smartphone equipped with high-end semiconductors. The new product raised eyebrows in Washington. That's because this advanced chip is exactly the kind of technology the Biden administration was trying to keep out of China's hands through the passage of the CHIPS Act a year ago.
Douglas Fuller, an associate professor at Copenhagen Business School, said Huawei's rise was less a violation of international trade rules than a web of gray wires used by companies to obtain banned materials needed to make chips. It was concluded that this was the result of using channels. “Weak American controls” over these suppliers helped Huawei, he said in a recent research report.
A similar approach could be applied to electric vehicles. EVs were a big focus of Biden's announcement this week of additional tariffs on $18 billion worth of Chinese goods. The levy he jumped from 25% to 100%.
Analysts expect Chinese EV companies to expand production in Mexico to avoid Biden's import taxes. Trade officials are already eyeing that loophole, suggesting this stage of the trade war will be a bit like whack-a-mole. (Relatively few Chinese-made EVs are sold in the United States, but the domestic industry is concerned that the market will soon be flooded with Chinese-made EVs like in Europe.)
Free market advocates argue that trade barriers are fraught with other problems. Joachim Klement, head of investment strategy at investment bank Liberum, told Dealbook that protectionist trade policies tend to stifle competition, limit consumer choice and drive up prices. (Even some within the Biden administration have acknowledged that there is a link between tariffs and prices.)
Another criticism: Tariffs under Mr. Biden and President Donald Trump are expected to be a drag on economic growth and the labor market, the Tax Foundation estimates.
Both political parties have adopted anti-China policies. Like President Trump before him, Biden has justified the tariff hikes by accusing China of “flooding global markets with artificially low-priced exports” and using the tariffs to strengthen national security. , frames it as a way to protect U.S. economic interests and “protect American workers and businesses.” As the TikTok Divestment and Ban Act shows, restricting Chinese technology in the United States is one of the few areas that unites divided Congresses.
The number of protectionist policies by governments around the world has exploded since the US-China trade war began under the Trump administration, but not all of them focus solely on tariffs.Drastic industrial policies such as the Inflation Control Act and the CHIPS Act use a combination of tax cuts and subsidies. and Export restrictions to build up strategic sectors such as semiconductors and green technology domestically at the expense of foreign rivals.
Companies often have a say in shaping industrial policy. “This system could be exploited by industry lobbyists,” Clement said. As a result, the bill could be watered down and create loopholes that even trade enemies could exploit.
So what works? Economists who support free markets tend to see great potential in industrial policy that is less stick than carrot. For example, they prefer policies that provide companies with low-interest loans and subsidies aimed at stimulating investment in research and development over policies that restrict trade. Such incentives tend to foster innovation and economic growth over time, Clement said. “They tend not to be inflationary,” he added. It should be noted that the bipartisan Infrastructure Act, IRA and CHIPS Act contain such provisions for businesses and research institutions.
Nobel Prize-winning economist Joseph Stiglitz told Dealbook this week, citing the Cold War space race as an example. At the time, Washington supported universities and research centers to achieve its moonshot ambitions and fend off rival nations. — Bernhard Werner
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John Mackie's next move
Co-founder John McKee, who has run Whole Foods for 44 years, says starting a business is like having a baby. “It's very satisfying because you're creating something out of nothing.'' ” he says. And that's what he was trying to convey in his upcoming book, “The Whole Story,” which describes how a single store became part of the luxury grocery giant that Amazon acquired for $13.4 billion in 2017. It details how it grew into a chain. Dealbook told Mr McKee that the merger was “conscious”. Capitalism” and the health-related startup he will open in July. The interview has been condensed and edited.
In your book, you describe a solo retreat where you process your anger at “feeling disrespected and powerless since selling Whole Foods to Amazon.” Do you regret selling Whole Foods?
We regret the circumstances in which the best option was to sell the company and Amazon. If I had to do it all over again, I would make the same decision. But of course, I wish we hadn't been in that situation in the first place, where we had shareholder activists trying to take over our company.
You also mention that in 2009 you wrote an op-ed on Obamacare that led to protests against Whole Foods and hundreds of letters to the board calling for your resignation. Since then, CEOs have come under increased pressure to speak out on social and political issues. What do you think they should do?
Don't get involved in politics. If the CEO takes a position on an issue, people will mistakenly assume that the company also takes a position on that issue. You risk being demonized and your business attacked.
Is it becoming harder to stay apolitical as employees and customers increasingly demand stance from business leaders?
I didn't get involved in all the controversy that happened after George Floyd. This controversy led to many CEOs speaking out and a lot of backlash afterwards. If it is directly related to what your business is about, you should stand firm. So Whole Foods championed organic produce and regenerative agriculture, for example. I think that's very appropriate.
It's been more than a decade since I published my book Conscious Capitalism, which argues that businesses can create value for all stakeholders, including society. If you were to write it again today, would there be anything you would change?
I'm actually worried about conscious capitalism. Because I think it's under attack from both the left and the right for a variety of reasons. Traditional capitalists attack capitalism because they are concerned that conscious capitalism wrests control of corporations from owners and redistributes power, so to speak, to stakeholder groups. be. Including trade union and customer representatives on the board of directors.
And on the other side are those who are weaponizing conscious capitalism to change corporate power structures. I think there are other purposes for business than maximizing profits, but making money is a very important purpose for business. I can't throw it away. However, that's not the only reason a business exists.
Conscious capitalism is not a political statement. That is the company's management philosophy. And I think that's where people misunderstand the most. It's not a redistribution of power. It's about how to manage your business to create more value for the world.
Your new startup, Love.Life, describes itself as a “holistic health and wellness club.” Why start a new company at the age of 70?
It will feature a health food restaurant, fitness center, spa, yoga and Pilates.We plan to build a pickleball court, a medical center focused on functional, integrative, and lifestyle medicine..
My heart is calling me to do so. I'd love to try that. And finally, it's still fun even when you're 70 years old.
thank you for reading! See you on Monday.
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