The Seven Tools Trump Needs to Win the Trade War with China

Beijing’s latest retaliatory tariffs—now at 84%—reveal a familiar hypocrisy: the world’s most notorious trade abuser crying foul when held accountable. In response, President Donald Trump has raised tariffs on Chinese goods to 125%, while dropping nearly all tariffs on countries that seek to trade fairly.

We applauded the president’s zealous focus on dealing with the world’s greatest trade abuser, who has an unbroken pattern of dumping cheap goods made with slave labor, forcing companies to transfer proprietary information, and using its economic reach to infiltrate critical infrastructure worldwide.  

We at The Heritage Foundation agree that it is long past due to deal with the threat China poses to America’s economic and security situation.

Two years ago, in March 2023, Heritage released a major research paper titled Winning the New Cold War: A Plan for Countering China. The threat from the Chinese Communist Party was so unique and pernicious that we broke with Heritage’s longstanding opposition to tariffs, urging the U.S. government to deploy tariffs to “punish Chinese predatory behaviors” and “compel the CCP to end unfair and predatory economic practices.”

We agree with Trump that we must deploy the full arsenal of American economic statecraft to combat Beijing’s coercive mercantilism. China spends more than $400 billion in industrial subsidies, operates roughly half a million state-owned enterprises, and steals $600 billion annually in American intellectual property. Since almost a third of Chinese manufacturers are unprofitable and survive only by taking “government guidance funds” from the Communist party, the U.S would either need to engage in a pyrrhic subsidy war or implement tariffs to realign supply chains away from adversaries.

China’s strategy is clear: to dominate key industries, bend developing nations to their will, and erode America’s industrial base. To respond, the president must be given a full toolbox of properly structured trade tools that revitalize American industry for a new Golden Age.

DEFENSIVE TOOLS

1. International Emergency Economic Powers Act—In response to the fentanyl crisis that China has fomented on America’s southern border, Trump used his emergency powers under the International Emergency Economic Powers Act . This authority allowed him the latitude to raise tariff levels on China and hold them accountable for their economic warfare against the United States.
    
2. Section 201 and 301—Under the Trade Act of 1974, Section 201 and Section 301 authority has been delegated to the president from Congress to safeguard American industry and punish unfair practices. These tools enable the president to respond to unfair trade practices with countervailing tariffs and address concerns such as IP theft and non-market barriers to trade. However, these sections have historically taken longer to implement and, therefore, have less utility for timely negotiations.

OFFENSIVE TOOLS

3. Reciprocal Trade Act—Trump supported this proposed legislation in 2019 to level the playing field with countries that impose steeper tariffs on U.S. exports. In addition to the emergency measures under the International Emergency Economic Powers Act, it would give the President formal authority to impose tariffs—grounded in parity, not discretion—and could help dismantle the complex patchwork of foreign barriers that hurt American manufacturers. It could also reassure the market as these tariffs would be binding, and not liable to be reversed or altered unexpectedly by simple Presidential decree.
   
4. Border Adjustment Tax to Fix Value Added Tax Imbalances—While most of America’s trading partners use a Value Added Tax which taxes imports but exempts exports, the U.S. does not. This disparity subjects American exporters to double taxation—once abroad under foreign Value Added Taxes, and again when profits return home—driving production offshore. Adopting a border-adjusted tax could end this disparity, applying taxes to imports while removing them from exports. The tax would also raise revenue to make permanent the pro-growth reforms in Trump’s 2017 Tax Cuts and Jobs Act, which largely expire this year. It can also be structured to be a World Trade Organization-compliant fix to global tax distortions that GILTY (Global Intangible Low-Taxed Income tax provision) and BEAT (Base Erosion and Anti-Abuse Tax) currently try to address.  

REINDUSTRIALIZING TOOLS

5. Revenue-Neutral Tax Reform and Full Expensing—Tariffs are taxes, who pays them aside. But when paired with growth-oriented tax policy, tariffs can fund productivity, not bureaucracy. For example, permanent full and immediate expensing of capital investment could supercharge domestic manufacturing. This provision would allow factories built in America to be written off on taxes in year one instead of three decades.

6. Deregulation and Permitting Reform—Reindustrializing America requires more than tariff walls. It means unleashing private industry from decades of regulatory suppression. Environmental micromanagement, environmental, social and governance mandates, diversity, equity, and inclusion bureaucracies, and permitting paralysis have strangled production requiring the Department of Government Efficiency to highlight these issues for Congress to address.
   
7. Shrinking Washington, Reindustrialize America—At America’s founding, tariffs funded the entire federal government. Today, government devours nearly 25% of gross domestic product—crowding out investment in the real economy. Every dollar of tariff revenue should be matched by real budget discipline. The New Cold War will be won not just by taxing imports, but by governing lightly and prudently to foster industrial reinvigoration.

While China’s economic warfare is not new, America’s ability to respond has been hamstrung by legal ambiguity and decades of political hesitation. Trump’s second term presents a historic opportunity to reset the rules of global commerce for free and fair trade, not just for America, but also for the world.

The Heritage Foundation made the case in Winning the New Cold War: tariffs—properly structured and paired with reform—are a critical tool to restore economic sovereignty abroad. Congress could decide to act decisively to give him the authority he needs—not just to fight back, but to win this New Cold War.

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