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?\u00a0 Economist Ian Fletcher recently stated \u201cI 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\u2019s last cycle of retaliation\u2026I believe it is absolutely crucial<\/u> 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.\u00a0 If China imposing tariffs on us for years hasn\u2019t been \u201ctrade war,\u201d why is it suddenly \u201ctrade war\u201d now that we\u2019re doing the exact same thing?\u201d<\/p>\n
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.”<\/p>\n
Mr. Stumo is right because for the past 24 years, the U. S. has experienced an ever-increasing trade deficit with China, transferring America\u2019s wealth to China and losing nearly six million manufacturing jobs. In 1994, our trade deficit<\/a> 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.<\/p>\n Previous administrations did nothing to fight against the trade war that China started.\u00a0 In fact, they aided China\u2019s efforts to win the trade war starting when China was granted \u201cMost Favored Nation\u201d status by Present Clinton in 2000.<\/p>\n The January 31, 2017 report<\/a>, “Growth in U.S.\u2013China 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.”<\/p>\n 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) \u2026China has also engaged in extensive and sustained currency manipulation over the past two decades, resulting in persistent currency misalignments.”<\/p>\n Robert D. Atkinson, President of the Information Technology and Innovation Foundation (ITIF<\/a>) expanded on Chinese mercantilist policies in his report<\/a>, \u201cEnough is Enough:\u00a0 Confronting Chinese Innovation Mercantilism (February 2012). He wrote, \u201cChina\u2019s strategy is to win in virtually all industries, especially advanced technology products and services\u2026 China\u2019s policies represent a departure from traditional competition and international trade norms. Autarky [a policy of national self-sufficiency], not trade, defines China\u2019s goal. As such China\u2019s 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.\u201d<\/p>\n In a speech to the Hudson Institute on October 4, 2018, Vice President Mike Pence stated, \u201cOver the past 17 years, China\u2019s GDP has grown 9-fold\u2026And 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\u2019s manufacturing base, at the expense of its competitors \u2013 especially America.<\/p>\n He commented, \u201cYet previous administrations all but ignored China\u2019s actions \u2013 and in many cases, they abetted them. But those days are over. Under President Trump\u2019s leadership, the United States of America has been defending our interests with renewed American strength\u2026we\u2019re 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\u2019ll levy even more tariffs, with the possibility of substantially more than doubling that number, unless a fair and reciprocal deal is made.\u201d<\/p>\n Most people are unaware that America staunchly protected its domestic industries with tariffs on imports until the end of WWII.\u00a0 On August 16, 2018, MarketWatch<\/a> published an article by Jeffrey Bartash, in which he stated, \u201cOne 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.<\/p>\n 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\u2019s annual budget.\u201d<\/p>\n Why did we allow the Chinese to win the trade war for so long?\u00a0 Because our economic \u201cexperts\u201d and advisers to past administrations naively thought that free trade and free markets would have a transformative effect on China\u2019s totalitarian form of government, gradually democratizing it.<\/p>\n The question is whether or not the tariffs will help rebalance U. S. trade with China.\u00a0 In the article<\/a> posted on the trade blog of the Coalition for a Prosperous America (CPA) on July 30, 2018, CPA Research Director Jeff Ferry examines \u201cChina\u2019s heavy dependence on – or overexposure to – the US for their trade surplus and their exports. He wrote, \u201cBut the fundamental message of all the data is that the US is not only the world\u2019s number one consumer and importer, but China\u2019s number one customer. That makes China more dependent on us than we are on them.\u201d<\/p>\n 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.<\/p>\n In contrast to numerous articles projecting job losses from the tariffs, the Coalition for a Prosperous America (CPA)\u00a0published a press release<\/a> on August 17, 2018, that provided \u201cdetails of its new \u2018Tariff Job Creation Tracker\u2019 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<\/a> of job losses related to the tariffs. To date, CPA has identified only 514 jobs lost specifically due to tariffs\u2014which means that job gains exceed job losses by a 20:1 ratio.\u201d<\/p>\n