What's the ideal policy response to China's tidal wave of exports?

Import barriers don't work but policymakers must still address its impact on domestic innovation, jobs and national security

- DANI RODRIK

As China’s trade surplus grows, with its merchandise exports increasingly dominating global markets, the rest of the world is grappling with how to respond.

Should countries erect trade barriers against China? Try to decouple from China by reshoring manufacturing and building national supply chains? Emulate its strategy of boosting manufacturing through industrial policies?

Policymakers must begin by asking why China's exports are a problem in the first place. After all, cheap imports epitomize the gains from trade. In important areas such as renewables, Chinese innovation and manufacturing prowess have produced significant climate benefits—a global public good. Moreover, bilateral trade deficits on their own are of little concern. Large overall trade imbalances can be a problem, but these are better handled with macroeconomic policies than with sectoral strategies aimed at China.

Still, there are three sensible arguments for why China’s exports are problematic. These centre on national-security considerations, the impact on innovation and job losses. Each of these motives calls for a separate strategy. But because current policymakers too often conflate them, we have gotten bad policy outcomes instead.

Start with national security. Leaders in the US and Europe increasingly view China as an adversary and a geopolitical threat. Hence, there is a valid justification for trade and industrial policies that protect strategic and defence interests, such as by reducing dependence on critical military supplies and safeguarding sensitive technologies. When such measures are deployed, governments have an obligation to show citizens—as well as China, lest international tensions be magnified—that their policies are appropriately targeted at national security-related goods, services and technologies, and that they are well-calibrated to avoid exceeding their objective.