OPINION:
President Trump’s trade war threatens renewed inflation, slower growth, permanently elevated interest rates and lower stock prices. However, Treasury Secretary Scott Bessent has the right instincts for bringing the imbroglio to a reasonable conclusion.
The administration is seeking agreements with major trading partners to lower barriers to U.S. exports and investments, and Mr. Bessent perceives a need to unwind the 145% reciprocal tariff on China. His goals for the emerging regime are unclear, but what we should want is not.
Robust multilateral trade
Open multilateral trade with like-minded nations would maximize benefits from U.S. commerce premised on our comparative advantages in advanced technology, finance and other services. Still, specialization should not be so extreme as to compromise the manufacturing sector’s contribution to research and development and innovation, self-sufficiency in military goods, essential products such as medicines and semiconductors, and minimally adequate supplies of other goods during wars or national emergencies.
Effectively, globalization with guardrails.
Mr. Trump’s threats to Canada with economic chaos and annexation, and the compromise of U.S. security commitments in Europe and the Pacific, make autarky more likely. This reduces potential markets for U.S. high-tech products, unnecessarily limiting U.S. R&D budgets and compromising rather than supporting U.S. leadership in advanced technology.
The dollar’s central role in global commerce requires a U.S. trade deficit, but with annual global trade at $33 trillion, that deficit needn’t be as large as the current $1.1 trillion.
Global trade is growing at about $1 trillion annually and likely requires additional U.S. assets to enable transactions of about half that amount. Simply divide $1 trillion by the velocity of money (1.4) and then consider the growing role of other currencies in global finance.
Given the security risks attendant with continued dependence on China for many critical products, a smaller trade deficit should be accomplished mainly by erasing the $300 billion merchandise trade deficit with China.
Trade with friends
More balanced trade with friendly nations based on comparative advantages requires negotiating down tariffs and nontariff barriers such as discriminatory government regulations and subsidies. As talks with India demonstrate, that’s a formidable task within the 90-day suspension of Mr. Trump’s reciprocal tariffs.
The United States should rejoin the Trans-Pacific Partnership, which includes Vietnam, Malaysia and Japan, as well as other key partners such as Mexico and Canada. It addresses most of the nontariff issues that should concern the administration.
Mr. Trump should recognize the progress on illegal border crossings and combating the illicit drug trade by removing new tariffs on aluminum, autos and other North American trade, and work toward free trade agreements with Britain, the European Union and other countries that remove most tariffs and nontariff barriers.
More equitable trade would permit the United States to reduce its account deficit to the extent Congress reduces the need for foreign Treasury sales to finance ever-larger federal budget deficits by cutting spending more than taxes.
Mr. Bessent would like credible commitments from our trading partners to limit trade with and contain China, but that’s a tough ask, given its large internal market and threats to retaliate against nations that overtly cooperate.
At minimum, we should expect credible, effective measures to stop the transshipment of Chinese goods through our trading partners. The United States can structure tariffs toward China in a manner that provides an incentive for other nations to erect limits on imports from the Middle Kingdom, too.
China seeks to dominate the global stage through “brute force economics.” President Xi Jinping’s goal is to control vital industries such as shipbuilding and semiconductors and minimize China’s dependence on other countries while maximizing their dependence on Beijing.
That limits the scope for constructive dialogue, and the United States should impose balanced bilateral trade in goods.
In 2024, U.S. merchandise imports from China were $438 billion, about three times the size of U.S. exports. We can’t end that dependence in a single stroke, but we can work it down over the remainder of Mr. Trump’s second term.
Specifically, require licenses to import goods from China and initially set the value of those to 2½ times the size of U.S. imports starting in July. Then reduce that ratio in steps to one over three years.
Those licenses could be distributed by auction. U.S. businesses such as Apple that need or claim a need to source goods from China won’t require exemptions. The auction process will reveal the value placed on that privilege.
Similarly, the United States should apply the ad valorem rate implied by the auction price of those licenses to the Chinese content of goods imported from other sources. The privilege to do so should be incorporated in the trade agreements the United States is now negotiating with other trading partners.
That way, either our allies can limit their imports from China or we can help them do it.
• Peter Morici is an economist, emeritus business professor at the University of Maryland and a national columnist.
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