As China's merchandise exports continue to expand its massive trade surplus, nations worldwide are urgently debating their next move. The sheer scale of China's export dominance has sparked widespread calls for imposing new tariffs and reshoring production back home. However, according to renowned economist Dani Rodrik, these are suboptimal reactions. In a detailed analysis, the Harvard professor argues that policymakers must first define the core problem before crafting effective, targeted responses that safeguard national interests without triggering a destructive trade war.
The Core Question: Why Are China's Exports Problematic?
Rodrik emphasizes that the initial step for any leader is to ask a fundamental question: why are China's exports seen as a problem? He acknowledges that cheap imports typically represent the classic gains from trade. In sectors like renewable energy, Chinese innovation and manufacturing scale have delivered significant climate benefits—a clear global good. Furthermore, bilateral trade deficits alone are not a major economic concern. While large overall trade imbalances can be problematic, they are more effectively managed through broad macroeconomic tools than sector-specific measures aimed solely at China.
Despite this, Rodrik identifies three legitimate reasons for global concern regarding China's export juggernaut. These are rooted in national security, the erosion of innovation capacity, and significant job losses. The central policy failure, he contends, occurs when governments conflate these distinct motives, leading to poorly designed and counterproductive measures.
Three Motives, Three Separate Strategies
1. The National Security Imperative: With China increasingly viewed as a geopolitical adversary by the US and Europe, there is a valid case for policies that protect strategic defence interests. This involves reducing dependency on critical military supplies and safeguarding sensitive technologies. Rodrik stresses that such measures must be precisely targeted. Governments have an obligation to demonstrate that their actions are narrowly focused on genuine national-security goods and technologies, avoiding unnecessary escalation.
He endorses the 'small yard, high fence' doctrine articulated by Jake Sullivan, former US National Security Advisor. This approach demands discipline, limiting trade restrictions to a small, well-defined set of critical areas. Applied earnestly, it can facilitate dialogue and prevent a harmful, broad-based decoupling.
2. Protecting the Innovation Ecosystem: A major worry is that China's exports could stifle innovation in advanced economies. Manufacturing, though employing a shrinking share of workers, remains a disproportionate source of research, development, and technological spillovers. When these activities are displaced by imports, the net gains from trade can diminish or even turn negative.
The response, Rodrik advises, must be calibrated. Protection should focus on advanced manufacturing segments with high potential for new technologies, not on consumer goods or established industries. For instance, in electric vehicles, the US and Germany should concentrate on next-generation technology rather than competing directly with China's mass-market EV prowess. The right tool is modern industrial policy—emulating China's own playbook with local adaptations—using public investment, coordination, and subsidies to foster innovation. Import protection can only serve as a temporary shield while these policies take root.
The Jobs Challenge: Looking Beyond Manufacturing
3. Addressing the Employment Impact: The 'China shock' that devastated manufacturing jobs in specific regions remains a potent political and social concern. Job losses in concentrated areas often lead to broader social dysfunction, including rising crime, opioid addiction, and political disillusionment.
However, Rodrik presents a stark reality: a focus on jobs does not justify blanket support for manufacturing or import protection. Manufacturing's share of employment has been in secular decline for decades, a trend unaffected by recent US policies under both President Donald Trump's tariffs and President Joe Biden's industrial subsidies. Europe shows similar patterns. Even China itself has lost tens of millions of factory jobs despite its sectoral dominance, thanks largely to automation.
Rodrik argues that a realistic 'good jobs' strategy must pivot to services—such as care, retail, and hospitality—which will absorb most future employment. This requires regional development initiatives and investments in labour-friendly technologies that enhance the productivity of workers without college degrees. This strategy calls for government action, but of a fundamentally different kind than protecting domestic factories.
In conclusion, Dani Rodrik asserts that China's export machine is a wake-up call, but import barriers are a misguided and distracting response. Effective policy must be driven by clear objectives, leading to targeted measures for narrow manufacturing segments and, crucially, a reimagined approach to creating quality employment in the economies of the future.
