One of the hardest things to accept for all of us who want Donald Trump to be a one-term president is the fact that some things are true even if Donald Trump believes them! And one of those things is that we have a real trade problem with China. Imports of Chinese goods alone equal two-thirds of the global U.S. trade deficit today.
But while Trump’s gut instinct is right, he’s so ignorant about the facts, he’s so weirdly obsessed with protecting “manly” industries like coal, steel and aluminum that affect our allies more than China — and he’s built such a chaotic policymaking process — that he can’t be relied up to navigate the China trade issue in our national interest.
For those of us who believe in free trade but who are convinced that China hasn’t been playing fair and don’t trust Trump to fix it, this is a critical problem to think through.
So, I sat down with David Autor, the MIT economist who’s done some of the most compelling research on the impacts of China trade. The first problem he raised has to do with the “shock” that China delivered to U.S. lower-tech manufacturers in the years right after Beijing joined the World Trade Organization in 2001, when it gained more open access to the U.S. and other world markets.
Autor and his colleagues David Dorn and Gordon Hanson found in a 2016 study that roughly 40 percent of the decline in U.S. manufacturing between 2000 and 2007 was due to a surge in imports from China. And it led to the sudden loss of about 1 million factory jobs in Ohio, Michigan, Wisconsin and Pennsylvania. Trump won all of those states.
This “China shock,” said Autor, led not only to mass unemployment but also to social disintegration, less marriage, more opioid abuse and more people dropping out of the labor market and requiring government aid. “China’s rapid rise, while enormously positive for world welfare, has created identifiable losers in trade-impacted industries and the labor markets in which they are located,” he added.
The second problem has to do with access to China’s market for the goods U.S. companies sell.
We assumed that China would “reform and open” after it joined the WTO. Instead, China “reformed and closed.” So China kept a 25 percent tariff on new cars imported from the U.S. (our tariff is 2.5 percent).
China grew its companies behind a wall of protection, fed them with state funds and, when they were competitive enough, only then opened up to U.S. competitors, but by then its own companies — as in the case of credit cards — had a vice grip on the market.
U.S. tech firms, like Apple, that want to offer cloud services to Chinese citizens have to store the data in China on servers operated by a Chinese partner. The U.S. has no such regulation.
Tesla founder Elon Musk tweeted it right when he said that “no US auto company is allowed to own even 50% of their own factory in China, but there are five 100% China-owned EV auto companies in the US.” American electric vehicle (EV) companies operating in China are forced to have a Chinese partner and transfer technology to them.
So what would a smart American president do? He’d sign the Trans-Pacific Partnership trade accord. TPP eliminated as many as 18,000 tariffs on U.S. exports with the most dynamic economies in the Pacific and created a 12-nation trading bloc headed by the U.S. and focused on protecting what we do best — high-value-added manufacturing and intellectual property. Alas, Trump tore it up without reading it. China was not in TPP. It was a coalition built, in part, to pressure Beijing into fairer market access, by our rules. Trump just gave it up for free.
Once a smart president restored participation in TPP, he’d tell Beijing: “Since you like your trade rules so much, we’re going to copy them for your companies operating in America: 25 percent tariffs on your cars, and your tech companies that open here have to joint venture and share intellectual property with a U.S. partner — and store all their data on U.S. servers.”
