John Tamny is one of the most eloquent defenders of free trade writing today. His pushback on a recent piece of mine deserves a genuine reply that is not confined to 280 characters. He reads my argument as an apology for trading with China. It isn’t, but the miscommunication is instructive.
Tamny argues (correctly) that trade lifts both parties and that this is the “best, most peaceful foreign policy mankind has ever conceived.” He is exactly correct and I agree with every word of it. Adam Smith, Frederic Bastiat, and indeed the entire free-trade tradition believes this. Here, Tamny and I are not opponents, we’re allies.
So when I call China a “bad actor,” I am not arguing that we should stop trading with them, feel guilty for having done so, or feel dread every time a container ship leaves Shanghai bound for the US. What I am saying is that there is room for improvement, specifically in areas where Chinese trade policy has created genuine national security concerns for Americans.
China’s Trade Sins
There is a lot of confusion surrounding what, exactly, makes China a “bad actor” in the realm of international trade. Many will point to practices like currency manipulation and export subsidization as China’s economic “sins.” But if we think carefully about what these policies actually do, we quickly realize that while they are economically destructive, it’s certainly not the US that’s being destroyed.
When China holds down the value of the renminbi, it’s making Chinese goods cheaper for American shoppers while effectively robbing its own citizens. The Congressional Research Service plainly recognizes this, writing, “this benefits U.S. consumers and U.S. firms that use Chinese-made parts and components, but could negatively affect certain U.S. import-competing firms and their workers.” On balance, China manipulating their currency is an overall boon for America, not a harm.
Likewise, their export subsidization is a gift to the American people, not a grievance. After all, where does Beijing get the money they use to subsidize their exports? They must get it from taxing their own people in some way, shape, or form. In other words, China taxes their own citizens and then turns around and uses those revenues to subsidize our purchase of Chinese goods.
The trade sins that do worry me are of a different kind altogether. Specifically, I am worried about the theft of intellectual property through forced technology transfers and the prevalence of surveillance equipment in Chinese-made products.
As I’ve written in the past, the theft of intellectual property allows Chinese manufacturers to “skip the costly research and development phase of production and jump straight to the low-cost manufacturing phase.” However, I was also quick to point out that in skipping the research and development phase, Chinese manufacturers know only the successes and do not benefit from the tacit knowledge of the failed attempts. This explains why China’s “attempts at copying other countries’ innovations are not facsimiles; they are knockoffs known for their low quality and low dependability.” IP theft is no reason to stop trading with China nor should we apologize for trading with them because of it. After all, anyone doing business with China knows that this is a likely result and decides to trade with them anyway. IP theft may be a problem, but it’s also one that markets can at least partially solve on their own.
The surveillance concerns, though, are harder to dismiss. In 2017, China reformed their National Intelligence Law to require that all Chinese companies cooperate with the state’s intelligence agencies. But what does “coordinate” mean in this context? Does it include requiring that Chinese companies embed equipment in their products that can spy on the US? Perhaps. We do know that that same year, China intended to build a garden in Washington DC. This garden would include a pagoda made of materials imported into the US in diplomatic pouches, which US Customs officials would not be allowed to inspect. This could reasonably be seen as problematic and so the project was cancelled. Likewise, in 2022, an FBI investigation determined that “Huawei equipment atop cell towers near US military bases… was capable of capturing and disrupting highly restricted Defense Department communications, including those used by US Strategic Command, which oversees the country’s nuclear weapons.” There were also reports of Huawei equipment being capable of accessing cell phone networks around the world through “back doors” baked into the software.
This isn’t a trade grievance, it’s theft and espionage. There’s an argument to be made that we should address these problems. But slapping tariffs on Chinese furniture does nothing to address them nor does tariffing Canada, Mexico, and the EU.
What China’s Trade Surplus Actually Tells Us
I want to be very clear about this: I do not cite China’s $1.2 trillion trade surplus as an economically meaningful statistic in and of itself. It isn’t. As I’ve pointed out several times now, trade deficits (and surpluses) are meaningless accounting identities, not economic identities that we should concern ourselves with. In fact, I’ve gone even further and argued that the entire idea of national income accounting gets exports and imports precisely backward.
So why did I bring up China’s trade surplus at all? Because it acts as a scoreboard for the trade war: did the strategy actually work?
Tariff advocates argued that by imposing punishingly high costs on Chinese exporters, Beijing would be forced to change its trade policies. But what actually happened? First, the tariffs were almost entirely borne by American consumers and importers, not Chinese exporters. Second, even though China’s exports to the US fell by about 30%, China’s overall exports actually rose by 5.5% in 2025 as they simply redirected their exports to e.g. the EU, Southeast Asia, Latin America, and Africa instead.
In other words, the trade war with China succeeded at impoverishing Americans. It failed, by the President’s own admission, to change Beijing’s behavior. And if anything, the trade war strengthened China’s position on the world stage by further diversifying their export market. That’s not so much “maximum pressure” as it is "maximum failure.”
That’s the argument I was making - China’s trade surplus isn’t evidence of their supposed economic prowess. It’s evidence that our tariff policy not only failed to achieve its intended (and misguided) goals, but actually accomplished the exact opposite.
The Argument We’re Having
Tamny wants a world of free, peaceful, and voluntary exchange between the peoples of every nation. So do I. To the extent that we disagree (and I’m not so sure that we do), the disagreements are about which Chinese behaviors deserve a response and which tools, if any, are appropriate for addressing them.
IP theft, forced technology transfers, and surveillance hardware are genuine national security concerns. There’s room for discussion about whether they are best addressed through policy or markets, but whether we like it or not, this administration has already decided that they are to be addressed through policy, specifically by “leveraging” access to the US market. However, “going it alone” did not work in the past, isn’t working now, and is only going to be even less effective going forward. If we want to solve these problems this way, the administration’s the trade policy they have adopted, specifically the erratic and whipsaw like implementation of tariffs against our allies and enemies alike, has made trade policy solutions even less likely to succeed in the future than in the past because, as I’ve written, they have alienated our friends and united our enemies.
Tamny and I want the same world, where goods, ideas, and trust flow freely across borders without governments getting in the way. The best argument for engaging seriously with China’s bad behavior is the same argument that Tamny and I both make: openness and trust are how the free world wins. We don’t build that world by convincing American workers that they can’t compete. We build it by assembling the coalitions, the credibility, and the institutions capable of holding bad actors accountable. That work requires allies who believe we will stand by our commitments instead of inventing new grievances. Right now, they don’t.
