A Firsthand View of China’s Trade Practices
Jorge Guajardo, Mexico’s former ambassador to China, spent six years navigating the complex world of trade negotiations between the two nations. During his tenure, he gained an in-depth understanding of how China’s trade policies function and why they present serious challenges to economies that operate under free-market principles.
“For 40 years, China’s government-funded industrial policy has supported its domestic industries in a way that free-market economies simply do not,” Guajardo explained. He pointed out that China’s success in global markets is not the result of a natural competitive advantage but rather a consequence of aggressive state intervention.
China’s government maintains low wages for manufacturing workers, implements fewer environmental and safety regulations than Western countries, and strategically devalues its currency to keep exports artificially cheap. “This unfair competitive advantage means that China can drown the world in its cheap goods—machinery, textiles, electronics, vehicles—potentially de-industrializing entire sectors,” Guajardo warned.
The consequences of these policies have been dire for manufacturers in Mexico and other developing nations. “I worked on numerous trade agreements between Mexico and China, and I saw firsthand how China’s capacity to cheaply produce and export goods made competition nearly impossible for our domestic manufacturers,” he recalled.
The Role of Tariffs in Trade Strategy
In response to these challenges, Guajardo argues that tariffs are not merely a reactionary measure but a vital economic instrument. “Those who criticize tariffs because they ‘raise prices’ miss the point. Higher prices are a feature of tariffs, not a bug,” he stated. By making foreign goods more expensive, tariffs level the playing field, giving domestic industries the opportunity to survive and remain competitive.
Guajardo believes that tariffs serve three critical functions: fostering supply chain resiliency, reducing dependence on foreign markets, and incentivizing domestic manufacturing. He uses China’s dominance in petrochemicals and rare minerals as a stark example of what happens when one country’s industrial policies go unchecked. “China is already producing enough petrochemicals—plastic and plastic derivatives—to completely meet worldwide demand and still hold a surplus. It will increase production capacity in these sectors by 50% in the next three years. If Beijing is allowed to export this glut of plastics to other countries, China could wipe out any other country’s petrochemical industry because no manufacturer could compete with the glut of cheap Chinese offerings,” he warned.
Beyond petrochemicals, China’s leverage extends to industries vital to national security. “China has already leveraged its dominance in key industries, such as critical minerals including gallium, germanium, and antimony—used in semiconductors, infrared technology, fiber optic cables, and solar cells—to wield geopolitical influence,” Guajardo emphasized. Without intervention, China’s continued expansion in these sectors will place other nations at a disadvantage, making them dependent on Chinese exports for essential goods and technologies.
Tariffs as an Economic, Not Diplomatic, Tool
While Guajardo supports tariffs as a means of protecting domestic industries, he is critical of their use as a diplomatic weapon. He expresses concerns over the way tariffs have been deployed by the Trump administration for broader political objectives, rather than strictly economic ones. “Trump has threatened 25% tariffs on the United States’ neighbors Mexico and Canada unless they halt the flow of migrants. He has also threatened tariffs against NATO ally Denmark if it doesn’t sell Greenland to the U.S. This sort of tariff-backed brinkmanship will inevitably lead to trade wars among allies,” Guajardo argued.
He warns that imposing tariffs indiscriminately can lead to unintended consequences, harming the very industries they are meant to protect. “Punitive tariffs that seek to punish allies over policies unrelated to trade—and which are not imposed in concert with protectionist policies to help domestic industries thrive—don’t foster manufacturing and jobs, nor do they help make supply chains more resilient,” he stated.
Instead, Guajardo proposes a strategic and cooperative approach to tariffs. “As a starting point, I recommend that countries, including the U.S., Mexico, and Canada, consider working together to roll out targeted tariffs that would take effect in three years, to be imposed on any goods on which our nations are more than 50% dependent on imports from China. This three-year advance notice would allow enough time for North American manufacturers to replace Chinese imports,” he suggested.
In addition to tariffs, he stresses the need for proactive industrial policies that promote domestic production. “Governments should implement aggressive industrial policies to incentivize new investments in relevant sectors to help grow domestic production,” he recommended. Without these complementary measures, tariffs alone will not be enough to rebuild domestic industries.
Lessons Learned and the Future of Trade
Guajardo acknowledges that while tariffs are a necessary tool, they must be wielded with precision. He cautions against the notion that any country can or should attempt to achieve complete self-sufficiency in manufacturing. “It would be a fool’s errand for any country, including the United States, to attempt to achieve absolute manufacturing self-sufficiency. The United States simply does not have the labor or the resources to make at home everything it imports from China,” he observed.
Instead, he advocates for a pragmatic approach that involves building stronger trade alliances while taking steps to ensure that domestic industries are not left vulnerable. “The era of unchecked trade liberalization has come at a high cost: shuttered factories, lost jobs, and economic dependency in both the U.S. and Mexico. But this path is not irreversible,” he stated.
By enacting targeted tariffs, implementing strategic industrial policies, and forming trade blocs that complement their economies, countries can rebuild their industrial capacity and reduce their reliance on China. “Tariffs are not a saber to be rattled, nor a relic of the protectionist past. They are a tool for the future,” Guajardo concluded.
His firsthand experiences negotiating with China provide a rare and valuable perspective on the global trade landscape. His insights serve as a warning about the risks of unfettered free trade while offering a clear vision for how nations can reclaim control over their economic destinies through thoughtful and deliberate trade policies.