One hopes that at least one of the billionaires nominated for President-elect Donald Trump’s Cabinet will explain to him that he is doing exactly the wrong things if he thinks China is “eating our lunch” or “killing us” or whatever. (Have you noticed all the Chinese students want to come here to study and remain to work, but virtually no Americans want to go there to study and work? Hmm, maybe they know something Trump doesn’t.) If Trump believes China is beating us in some fashion, he has picked two of the most misguided policies, neither of which is going to make us “win” more.
First, Trump’s notion of applying 35 percent tariffs would be a big blow to the people who elected him, not China. The 35 percent tariff would not be paid in Beijing. It’s paid at Walmart, Costco and anyplace else Americans buy things. As Scott Lincicome explained nearly a year ago:
This, of course, means that American families, many of whom are already struggling to get by, would end up paying more—a lot more—for food, clothing, electronics, and everything else that now says “Made in China.” The Trump tariff is in essence a high tax on much of what Americans now buy from Target, Walmart, Amazon, and other major retailers—a tax that hurts poor and middle-class Americans far more than it hurts rich ones like Donald Trump.
Individuals wouldn’t be the only ones screwed by the Trump tariff. American businesses (and their many workers) would also be hit. Because almost half of what we import from China is industrial supplies and materials or non-automotive capital goods (i.e., inputs used by American manufacturers), many of these firms would pay more for the things they need to remain globally competitive. These higher costs, of course, also mean fewer employees, if not outright bankruptcy.
The entire notion that we can lure back low-skill jobs to the United States is so silly that even many of the people Trump is pandering to do not buy it. They know that “some of these jobs are dying.” If those jobs ever came back, in all likelihood a good deal of them wouldn’t be filled by humans; automation would continue apace. Virtually every economist will tell you, “While improvements in productivity have slowed in recent years, those decades of efficiency upgrades aren’t going away. That means it’s unlikely that the U.S. will restore the bulk of lost manufacturing jobs, no matter how many deals President-elect Trump can pull off.”
So tariffs hurt American consumers, particularly lower-income consumers. Those jobs, in any event, don’t come back. Trump doesn’t have to take our word for it. Trump can talk to his nominee for commerce secretary, Wilbur Ross, who explained in 2012: “The reality is if something were to happen that cost China jobs — like if they upwardly revalued the currency a lot — those jobs aren’t going to come back to the U.S. They would go to Vietnam, they would go to Thailand. They would go to whatever country was the lowest cost.” He added: “So it’s a fiction on both sides that those jobs will come back. The way we’ll get more jobs is by creating new industries, new companies, businesses that are higher tech and therefore can compete.”
If Trump does nothing in this regard, American consumers and workers alike would be better off. Manufacturing has rebounded (albeit with fewer workers because of automation). Moreover, the trade deficit has little, if anything, to do with growth and jobs. That’s why we are growing and adding jobs as our trade deficit widens.
Meanwhile, Trump’s crusade against the Trans-Pacific Partnership deals a double blow to the United States. Doug Bandow of the Cato Institute reminds us that “an American commercial retreat would leave Asia open for Chinese domination. No surprise, Beijing would be only too happy to grab economic leadership in the Asia-Pacific.” He cautioned:
The U.S. economy remains more sophisticated, innovative, and transparent than China’s economy. Investors and traders in America benefit from the rule of law, democratic process, and respect for human rights. Nevertheless, geography gives the People’s Republic of China an important advantage. China already is the biggest investor and trader in the region. Even South Korea, a long-time American military ally, trades more with the PRC than with the U.S. and Japan combined.
Moreover, Beijing has been pushing its own trade agreements. Chinese President Xi Jinping told business leaders at a Pacific Rim summit: “China will not shut the door to the outside world but will open it even wider,” in sharp contrast to President-elect Trump’s plans. The PRC already has reached FTAs with several TPP signatories. Beijing also is pushing a Free Trade Area of the Asia-Pacific and an expanded, 16-member version of ASEAN’s Regional Comprehensive Economic Partnership. America’s trading partners, but not America, would be invited to join these networks.
In this case Beijing, not Washington, would be choosing participants. Beijing also would be creating commercial structures and writing investment and trade rules for the world’s most dynamic economic region. These agreements would not have the labor and environmental standards favored by U.S. negotiators.
We wouldn’t be winning at all. (“Economists Peter A. Petri and Michael G. Plummer concluded: ‘Delaying the launch of the TPP by even one year would represent a $77 billion permanent loss.'”) As one trade guru put it: “The absence of a U.S.-led TPP would be a nice Lunar New Year’s gift to President Xi Jinping. Happy Year of the Rooster!
In short, Trump’s tariff scheme against China and retreat from the TPP won’t help American workers, but they will help China, hurt U.S. consumers and close off markets for American firms that need global markets to grow and add workers. What would work? Most economists and American employers agree: Improve education and training for U.S. workers. That requires “manufacturing innovation to keep U.S. factories in the lead; ensuring that workers get industry-relevant training that equips them for today’s digital factories; and supporting the nation’s regional clusters of advanced industry, whether in Grand Rapids or Pittsburgh.” That would certainly cost something, but it’s surely better than counterproductive Trumpian schemes.