President Trump has been accused by many of starting a trade war. Are we really in a trade war and did the U. S. start it? Economist Ian Fletcher recently stated “I define trade war as a cycle of tariff and retaliation where the retaliations are driven not by rational desire to balance trade or achieve the benefits of a tariff-protected economy, but simply by one-upping the other side’s last cycle of retaliation…I believe it is absolutely crucial to make the distinction between trade war, and the ongoing trade conflicts which have always been going on even under nominally free-trade circumstances, clear to the public. If China imposing tariffs on us for years hasn’t been “trade war,” why is it suddenly “trade war” now that we’re doing the exact same thing?”
Michael Stumo, CEO of the Coalition for a Prosperous America, recently stated, “China started the trade war in 1994 with currency devaluation and state-directed capitalism. Then they got better at it.”
Mr. Stumo is right because for the past 24 years, the U. S. has experienced an ever-increasing trade deficit with China, transferring America’s wealth to China and losing nearly six million manufacturing jobs. In 1994, our trade deficit with China was $29.5 billion, and by 2004, it had doubled to $162.3 billion. After a slight dip in 2009 during the depths of the Great Recession, the trade deficit grew to $375 billion in 2017.
Previous administrations did nothing to fight against the trade war that China started. In fact, they aided China’s efforts to win the trade war starting when China was granted “Most Favored Nation” status by Present Clinton in 2000.
The January 31, 2017 report, “Growth in U.S.–China trade deficit between 2001 and 2015 cost 3.4 million jobs,” written by Robert Scott, Director of Trade and Manufacturing Research at the Economic Policy Institute, states that when China entered into the World Trade Organization (WTO) in 2001, “it was supposed to bring it into compliance with an enforceable, rules-based regime that would require China to open its markets to imports from the United States and other nations by reducing Chinese tariffs and addressing nontariff barriers to trade.”
However, Scott wrote, “China both subsidizes and dumps massive quantities of exports. Specifically, it blocks imports, pirates software and technology from foreign producers, manipulates its currency, invests in massive amounts of excess production capacity in a range of basic industries, often through state owned enterprises (SOEs) …China has also engaged in extensive and sustained currency manipulation over the past two decades, resulting in persistent currency misalignments.”
Robert D. Atkinson, President of the Information Technology and Innovation Foundation (ITIF) expanded on Chinese mercantilist policies in his report, “Enough is Enough: Confronting Chinese Innovation Mercantilism (February 2012). He wrote, “China’s strategy is to win in virtually all industries, especially advanced technology products and services… China’s policies represent a departure from traditional competition and international trade norms. Autarky [a policy of national self-sufficiency], not trade, defines China’s goal. As such China’s economic strategy consists of two main objectives: 1) develop and support all industries that can expand exports, especially higher value-added ones, and reduce imports; 2) and do this in a way that ensures that Chinese-owned firms win.”
In a speech to the Hudson Institute on October 4, 2018, Vice President Mike Pence stated, “Over the past 17 years, China’s GDP has grown 9-fold…And the Chinese Communist Party has also used an arsenal of policies inconsistent with free and fair trade, including tariffs, quotas, currency manipulation, forced technology transfer, intellectual property theft, and industrial subsidies doled out like candy, to name a few. These policies have built Beijing’s manufacturing base, at the expense of its competitors – especially America.
He commented, “Yet previous administrations all but ignored China’s actions – and in many cases, they abetted them. But those days are over. Under President Trump’s leadership, the United States of America has been defending our interests with renewed American strength…we’re also implementing tariffs on $250 billion in Chinese goods, with the highest tariffs specifically targeting the advanced industries that Beijing is trying to capture and control. And the President has also made clear that we’ll levy even more tariffs, with the possibility of substantially more than doubling that number, unless a fair and reciprocal deal is made.”
Most people are unaware that America staunchly protected its domestic industries with tariffs on imports until the end of WWII. On August 16, 2018, MarketWatch published an article by Jeffrey Bartash, in which he stated, “One of the very first bills new President George Washington signed, for instance, was the Tariff Act of 1789. He inked the bill on July 4 of that year. The tariff of 1789 was designed to raise money for the new federal government, slash Revolutionary War debt and protect early-stage American industries from foreign competition.
Most goods entering the U.S. were subjected to a 5% tariff, though in a few cases the rates ranged as high as 50%. It was the first of many tariffs that Congress passed over a century and a half. They generated the vast majority of federal revenue until the U.S. adopted an income tax in 1913. In some years tariffs funded as much as 95% of the government’s annual budget.”
Why did we allow the Chinese to win the trade war for so long? Because our economic “experts” and advisers to past administrations naively thought that free trade and free markets would have a transformative effect on China’s totalitarian form of government, gradually democratizing it.
The question is whether or not the tariffs will help rebalance U. S. trade with China. In the article posted on the trade blog of the Coalition for a Prosperous America (CPA) on July 30, 2018, CPA Research Director Jeff Ferry examines “China’s heavy dependence on – or overexposure to – the US for their trade surplus and their exports. He wrote, “But the fundamental message of all the data is that the US is not only the world’s number one consumer and importer, but China’s number one customer. That makes China more dependent on us than we are on them.”
In other words, China would be hurt more by the tariffs reducing their imports to the U. S. than the U. S. would be hurt by having to pay more for imports. Over time, the tariffs would rebalance our trade with China as imports of Chinese goods are reduced, which would reduce our deficit with China.
In contrast to numerous articles projecting job losses from the tariffs, the Coalition for a Prosperous America (CPA) published a press release on August 17, 2018, that provided “details of its new ‘Tariff Job Creation Tracker’ that tallied US manufacturing jobs gained in the wake of recent tariff actions. CPA found 11,100 jobs announced or planned in four major sectors affected by tariffs. These results have now prompted a corresponding study of job losses related to the tariffs. To date, CPA has identified only 514 jobs lost specifically due to tariffs—which means that job gains exceed job losses by a 20:1 ratio.”
On November 27, 2018, CPA released a press release: “Steel Tariffs Creating Jobs, Boosting GDP” which stated: “This ground-breaking economics study by the CPA Economics team shows that the steel tariffs are benefiting the US economy,” said CPA Chairman Dan DiMicco. “The same is true for other tariffs implemented this year. If we continue to follow rational trade policies, the benefits will be felt by every worker, farmer, and shareholder in the US.”
CPA Research Director Jeff Ferry said, “The performance of the US economy since the steel tariff was implemented in March has been outstanding, with over a million more jobs in the US economy today than in March, and GDP growth roughly half a point higher than economists had predicted.”
Already the tariffs are resulting in an expansion of U. S. steels jobs and investment by U. S. steel companies in their facilities. On August 17, 2018 Manufacturing News & Insight featured this article “US Steel to Invest $750M in Gary Works Plant in Indiana” stating, ”U.S. Steel plans to spend at least $750 million to upgrade a century-old steel mill along northwestern Indiana’s Lake Michigan shoreline…Company and government officials said Thursday that the project will help preserve Gary Works’ nearly 3,900 steelworker jobs, and could help ensure the 112-year-old mill lasts another century. The investment accounts for more than a third of U.S. Steel’s $2 billion asset revitalization program…”
Manufacturing is the foundation of the U.S. economy and our country’s large middle class. Losing the critical mass of our manufacturing base would result in the loss of the large portion of our middle class that depends on manufacturing jobs. American manufacturers supply the military with essentials including tanks, fighter jets, submarines, and other high-tech equipment. We can’t manufacture these goods without domestic steel and aluminum. If we lose the domestic capacity to produce steel and aluminum, our national defense would be in danger, and it would be impossible to maintain our country’s position as the superpower of the free world. Let’s give them time to work to rebuild our U. S. steel and aluminum industries. Hopefully, the tariffs will inspire China to open up their markets to U. S. goods to create to a freer, more open trade relationship between our two countries.
Tags: American manufacturing, jobs, trade policy