AEI's Scissors Says Tech Supply Chain Restrictions, Not Tariffs, Are the Future

Derek Scissors, a China scholar at the American Enterprise Institute, has been arguing for decoupling from China for years. He says whether President Donald Trump wins a second term, or a Democrat replaces him, it's likely tech companies will have to change their supply chains and reverse the international approach to research and development. Scissors said in an interview that while apparel and other low-value goods manufacturers were already moving to cheaper countries in Asia, consumer technology firms were happy in China before the trade war began. "You could easily get a Democratic administration that wants to get tech out of China," he said. "Biden's people say they want that."

He said the next Democratic administration will not use broad-based tariffs, as Trump has done. Scissors said advanced microchip design is dominated by the United States, and that policymakers should intervene to stop industrial espionage in that field. But he said for the chip makers, restrictions on cooperating with Chinese researchers also will likely mean fewer sales in China. "If you say to Intel: you cannot do any research and development with China, the Chinese are going to find Intel a lot less interesting," he said.

Scissors said if decoupling happened, the most advanced chips would likely be assembled in Japan, South Korea, Taiwan, and maybe the Philippines. "The thing about China -- it's the end of a supply chain with tons of inputs where you make hundreds of billions of low-end consumer electronics every year," he said. "There's no other country that can replace that." Scissors said that scale might be found in Indonesia, Mexico, Vietnam, or perhaps a state or two in India.

Trump tweeted on Aug. 23 that he was ordering American companies to move out of China, using emergency powers to do so, but Scissors thinks he cannot do so, both for legal and political reasons. Trump will be sued if he tries to invoke the International Emergency Economic Powers Act, and Scissors said that if he were called to testify, he would not support the rationale, even though he supports the underlying push to decouple.

He said the original Section 301 report put a dollar figure on both industrial espionage and governmental subsidies, and said the solution was to put 25 percent tariffs on $50 billion worth of goods. "That doesn't sound like an emergency; what changed? All this is, is the president throwing a tantrum," he said. He called the tariffs on List 1 and List 2 "a tiny little action."

"There's no position here on IEEPA here that makes substantive or political sense," Scissors said. He thinks that if chip companies were told to wind down joint research projects it wouldn't make the stock market freak out, or destroy the American economy, but, he said, "The Democrats are going to pick it apart."