Crypto News: Supply Lines: US-China trade relations

Does anyone remember the Smoot-Hawley tariffs of 1930? Anyone? Anyone?

The folks at American Compass do, and they've written an analysis of what would happen if the US revokes China's permanent normal trade relations. The upshot is that it would subject the country's trade with China to rates dating back to that legislation.

That's not just a lesson for an absent Ferris Bueller — it's a lesson for today's policymakers as they consider putting China in the same category as Cuba, North Korea, Russia and Belarus.

The report this month from the conservative think tank argues that would be a bad plan for dealing with China, with whom the US has a complicated trade relationship.

It's not just that the tariffs would be too low and focus on things like agriculture and manufacturing that no longer matter as much to the relationship. It's that they would be ill-suited for achieving the overarching policy goal, which would be to move the US away from depending on China for certain critical materials.

Instead of simply rescinding the country's PNTR status, formerly known as most-favored nation, the report offers another solution: The US should put China in a third column designed to encourage supply chain independence in the US. As part of that effort, the US should distinguish between "strategic" and "non-strategic" goods.

Toys and Engines

Non-strategic goods such as common consumer goods like toys and other items would be subject to a 25% tariff rate, while strategic goods such as engines that could be used in fighter jets would be subject to a 100% tariff rate. That higher rate "will result in severe or total reduction in reliance on China for those goods," according to the report.

On the Bloomberg Terminal, read this Bloomberg Economics report analyzing what Trump II tariffs would mean for the EU.

The idea has some fans. Senators Tom Cotton, Marco Rubio and Josh Hawley have introduced legislation that would rescind China's PNTR status and create a separate mechanism for treating imports from the country. As part of that treatment, goods deemed important to national security would be subject to a tariff rate of 100%.

As we wrote back in September, the discussion about this topic is very active in Washington these days. There is broad bipartisan support among both parties for getting tough on China and some version of a bill changing China's trade status could be enacted under a new Congress and a new administration.

Related Reading:

—Daniel Flatley in Washington

Click here for more of Bloomberg.com's most-read stories about trade, supply chains and shipping.

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