After more than 20 years of so-called “normal” trade relations between the United States and China, the consensus on the desirability of that trade relationship has shifted dramatically—and for good reason. After China received Permanent Normal Trade Relations (PNTR) status in 2001, the United States lost millions of manufacturing jobs and tens of thousands of factories, which in turn left a trail of broken communities and families. As a result, the U.S. share of global manufacturing production dropped from 25 percent in 1997 to 17 percent in 2019, and the United States now faces severe supply chain risks due to its reliance on Chinese goods.
Recognizing the unsustainability of this situation, a broad set of policymakers now support rescinding China’s PNTR status and permanently imposing higher tariff rates on China. Bipartisan reports from the House Select Committee on the Strategic Competition Between the United States and China and the U.S.-China Economic and Security Review Commission have recommended ending normal trade relations with China. The idea was also included in the 2024 Republican Party Platform.
American Compass has issued a new report to help guide policymakers in implementing these proposals and eliminate the United States’ strategic and economic dependence on China. New legislation introduced by Sens. Tom Cotton (R-Ark.), Marco Rubio (R-Fla.), and Josh Hawley (R-Mo.) would codify this approach, rescinding China’s PNTR status, creating a new tariff schedule specific to China, and imposing tariff rates of 100 percent on goods vital to U.S. national security.
While China is not the only country that engages in trade abuses to the detriment of U.S. workers and industries, it is unique in how deliberate, sizeable, and effective its mercantilist policies have been in capturing strategic sectors over the past two decades. For example, China now dominates advanced battery supply chains, including nearly 100 percent of graphite processing for anodes. China also accounts for over 70 percent of the world’s rare earth elements, 90 percent of rare earth element processing, and over 95 percent of the world’s dry cargo and refrigerated containers. The list goes on. This dependence on China represents a critical threat to U.S. economic security and to U.S. defense procurement.
Moreover, China has not acted with the reciprocal good will that many of the politicians, economists, and business leaders who advocated for its PNTR status suggested it would. Rather than opening market access and ending state control of its industries, China has stolen U.S. technology, maintained market restrictions, and ramped up state subsidies, including through explicit initiatives to dominate the 21st-century economy like its Made in China 2025, Strategic Emerging Industries, and Military-Civilian Fusion programs. These policies have supercharged the U.S. trade deficit, hollowed out our industrial sector, and fostered dependence on China for critical U.S. supply chains—a reality made unmistakably clear during the COVID-19 pandemic.
The photo taken on July 29, 2024 shows cars for export waiting to be loaded on a ship at a port in Lianyungang, in eastern China’s Jiangsu province.
STR/AFP/Getty Images
All nations with normal trade relations enjoy the same average tariff rate of around 3 percent. This means that until President Donald Trump began imposing tariffs in response to China’s trade abuses in 2018, China enjoyed the same low tariff rates as allied market economies like Great Britain. The Trump administration deserves enormous credit for getting the ball rolling on addressing China’s trade abuses. Unfortunately, China has not honored the “Phase One” deal achieved at the end of President Trump’s term, and the Biden administration’s restrained approach of “derisking” a narrow set of advanced sectors of the U.S. economy has failed to address the full scope of the China challenge. The United States can no longer rely on negotiations or targeted measures to correct course—it must pursue a hard reset of trade relations with China.
Recognizing this reality, American Compass’ proposal calls for a 100 percent tariff, phased in over five years, on a broad range of strategic goods from China to completely eliminate U.S. dependence on China for such goods. These goods would encompass military and “dual-use” goods; advanced technology-related goods; goods critical for American infrastructure, including the energy, health, and transit sectors; and key inputs for goods in those categories, including commodities and basic manufactured goods. The default rate for non-strategic goods from China should be 25 percent and the de minimis loophole that allows packages under $800 to enter the U.S. tariff-free should be eliminated, which will further incentivize companies to reroute supply chains back home to the United States, or at least to friendlier shores.
This proposal would build on the successes of President Trump’s Section 301 tariffs, which lowered imports of tariffed goods and raised significant revenue without significantly raising consumer prices. While tariffs under American Compass’ proposal would be higher and apply to a wider array of goods, they would also raise at least $50 billion in additional annual revenue to offset any retaliation from China. This revenue could also be put toward a national development bank, research and development, and workforce training to help reshore U.S. industry. Though other policies alongside new tariff rates will be required—including policies targeting Chinese tariff evasion—permanently raising tariff rates on China is essential to lowering the U.S. trade deficit, restrengthening domestic manufacturing, and restoring American competitiveness in the long term.
Some will argue that this policy would be a departure from “free trade” ideals and international “norms,” but the reality is that China has never adopted those frameworks. The “trade war” between the U.S. and China has been going on for decades and the United States must expand on its recent (late) efforts to fight back. While there may be some disruptions in the short term, American workers and industries will ultimately benefit from better jobs, higher wages, and more reliable supply chains.
Policymakers are right to recognize that the United States cannot continue on its current economic path if it expects to outcompete China. The United States has a right and a duty to define its national interests and to position its economy to protect and pursue those interests. Continuing to treat the trade relationship between the United States and China as “normal” will only continue to disfavor our own economy, security, and citizens.
Mark DiPlacido is a policy analyst at American Compass.
The views expressed in this article are the writer’s own.
Update 10/11: A reference to the tariff rate of Australia was erroneous and has been deleted.