COVID-19 exacting its own retribution on China

The COVID-19 pandemic has caused public sentiment in the United States to further sour on China and its authoritarian leadership — and for a number of good reasons. China’s government mishandled the coronavirus outbreak, putting millions of people around the world at risk. But it would be a costly mistake to escalate the tariff war or take the other punitive economic measures currently under consideration.

Despite China’s claims, it’s an accepted fact that the COVID-19 virus originated in Wuhan, China, probably at one of its “wet markets.” Chinese authorities suppressed information about the virus for weeks. They persecuted Dr. Li Wenliang, the local physician who first tried to raise the alarm, for allegedly spreading “rumors.” Only after his death from the virus and an outbreak of public mourning did they try to rehabilitate his reputation. They refused for weeks to share genetic information about the virus with other nations. And they allowed internal and external travel even after knowing the virus was contagious and dangerous. All that is documented.

Egged on by China hawks in Congress, the Trump administration has been weighing options for retribution, including demands for “reparations.” Ideas include confiscating the $1 trillion in U.S. Treasuries owned by China and suspending our interest payments, repealing China’s “sovereign immunity” so that it can be exposed to a raft of lawsuits, and – President Trump’s go-to option – imposing further tariffs on Chinese goods to extract compensation.

Each one of those actions would blow up in America’s face. Repudiating debt would harm the credit worthiness of the United States for decades, permanently raising the cost of borrowing for the federal government. Suspending interest payments would cause the same reputational damage without saving much for the Treasury. Ending sovereign immunity for China would expose the United States to the same risk, inviting lawsuits from around the world against the U.S. government for a Pandora’s Box of alleged misdeeds.

Then there’s the tariff option against China, which has already proven to be a documented failure. Section 301 tariffs imposed on imports from China during the past two years have boosted annual U.S. duty collections by $50 billion or so. But numerous studies have concluded that it is American importers and consumers who pay the cost of those tariffs through higher prices. A new round of retaliatory COVID-19 tariffs against China would be no different.

A more constructive range of options could include “smart sanctions” aimed at Chinese officials and agencies directly responsible for the initial cover-up of the virus (like the Magnitsky Act aimed at Russian officials). Targeted tariffs or export controls should be reserved for narrowly defined goods that directly impact U.S. national security, not at everyday consumer goods such as clothing, shoes, furniture and personal computers. President Trump could do his part by dialing down his undeserved praise for his counterpart in Beijing, President Xi Jinping, who personifies the worst of the Chinese system.

Ultimately, China’s behavior will extract its own punishment by tarnishing its model. Authoritarian regimes may be able to act more decisively, but they are also limited by a lack of free and open information. They cannot freely admit and learn from mistakes. And they usually preside over underdeveloped economies. (“Wet markets” are not a problem in advanced economies.) Given the coronavirus disruption, multinational companies across the globe may reassesses the extent of their supply-chain ties to China. 

In contrast to China, consider the relative success of its neighbors Japan, South Korea, and Taiwan. All three have managed to effectively mitigate the impact of the virus under the governance of pluralistic democracies that respect human rights. Their much freer economies have delivered per capita incomes – $40,112 in South Korea, $42,798 in Japan and $50,500 in Taiwan – that are between two and three times higher than the $18,237 in China (according to the World Bank and CIA Factbook). The vaunted Chinese model keeps its people oppressed and poor compared to its neighbors while breeding globally disruptive pandemics.

Instead of exacting mutually damaging retribution against China, the U.S. government should focus on pursuing the best policies at home to mitigate the COVID-19 virus. On the international front, it should strengthen ties with allies while distancing itself from China where appropriate. And it should never do so in any way that compromises our own successful model of free and open markets, transparency, democratic accountability and respect for individual liberty.

Daniel Griswold is a senior research fellow and co-director of the trade and immigration project at the Mercatus Center at George Mason University.