Tariff Wars, American Jobs & Economic Mythology

 

“China has not moved to embrace the market-oriented principles on which the W.T.O.

and its rules are based, despite the representations that it made when it joined 20 years ago.”

Katherine Tai, the U.S. trade representative. February 2022

 

After Donald Trump’s trade war with the PRC moved into full-on high gear in 2018/19, despite a Chinese pledge to buy $200 billion in additional American goods as part of a possible de-escalation of tariffs, the Peoples’ Republic came to a very simple conclusion: the United States was no long a reliable source of foodstuffs. China thus turned its agricultural import focus to “anywhere but the United States.” The Great Rift Valley in Africa. Mata Grosso in Brazil. And signatories to its Belt and Road Initiative. Apparently permanently. 

One of our biggest agricultural exports to China were soybeans. After the trade war began, China shutdown virtually all of its imports of American foodstuffs. The American farmers who were instantly devastated the most were those who produced soybeans. As you can see from the above chart from 2019, demand for American soybeans plunged. China reduced its purchases of soybeans by over 80%. Fortunately for American farmers, the latest supply chain/COVID slam has increase demand for our farm goods from other global markets, almost to the point of making up for the loss of China’s business. But that would have happened even if China had remained a major buyer our farm goods.

Economists have always questioned the efficacy of trade tariff wars. In the rear view mirror of history, economists have looked at the overall impact of those Trump-imposed tariffs “to save American jobs.” As Michael Hiltzik, writing for the February 16th Los Angeles Times, noted in his review of that economic analysis, “The final tally is in, and the numbers are grim: Donald Trump’s huge trade deal with China — the deal he trumpeted as a ‘transformative’ victory for the U.S. — turned out to be a massive bust… The idea floated by Trump was that the deal would end the trade war he had started with China, while producing a massive infusion of new income for American manufacturers and growers.

“None of those outcomes happened. Although the trade war stopped escalating, most of the tariffs Trump had imposed on Chinese goods remained in place, as did retaliatory tariffs China imposed… More to the point, ‘China bought none of the additional $200 billion of exports Trump’s deal had promised.’… That’s the finding of a study just published by Chad P. Bown of the Peterson Institute of International Economics, who has assiduously tracked China trade since the deal was reached.

“Trump called the deal a ‘historical’ agreement — and even bragged that China would buy not $200 billion in new goods and services but $300 billion. As Bown writes, however: ‘Today the only undisputed ‘historical’ aspect of that agreement is its failure.’…In the end, Bown calculates, China bought only 57% of all the exported goods and services it had committed to purchase under the deal, ‘not even enough to reach its import levels from before the trade war.’… If you’re looking for more evidence that Trump’s vaunted negotiating skills were a sham from the start, there you have it.’ 

“Trump launched his trade war under the influence of Peter Navarro, an intensely anti-Chinese economist on the White House staff. He consistently proclaimed that the tariffs would cost China billions, but that notion was ridiculed by trade experts, who were virtually unanimous in concluding that they’ve been paid entirely by Americans.

“A paper issued in 2019 by trade economists from the Federal Reserve and Columbia and Princeton universities reported that the trade war was costing the U.S. economy $1.4 billion per month by the end of 2018… That was the consequence of higher prices for U.S. consumers, lower manufacturing growth and the cratering of agricultural exports, all driven by Trump policies… American exports to China fell because of retaliatory tariffs imposed by Beijing on more than $110 billion in goods such as steel, aluminum and agricultural products.”

But before my Democrat friends celebrate another Trump failure, we should note that Sino-American relations continue to hover near an historical bottom. While the Biden administration has permitted climate change matters to be discussed between the US and China, for the most part, not much has changed on the trade front between these two superpowers. Just a mild attempt at tariff de-escalation. In fact, the World Trade Organization granted Beijing a new tariff weapon against the U.S. during a politically sensitive moment for the Biden administration — almost a year into a tenuous truce in the trade war between the two largest economies.

On January 26th, a WTO arbitrator in Geneva ruled China can retaliate against $645 million worth of annual American exports as part of a decade-old trade dispute over U.S. anti-subsidy duties on Chinese goods. The amount was, however, significantly less than the $2.4 billion that China had initially requested legal authority to target. China still embraces exclusionary practices, still is open to stealing our intellectual property without much in the way of remedies or restrictions and most certainly has not resumed as the trading partner they promised. Their saber rattling over the “rogue colony” – Taiwan – has only escalated with flyovers and military exercises in nearby waters. Their build up of their manmade island airfield in the neighboring Spratly chain continues. 

In the end, we only seem to be enforcing the failure of tariff wars. American consumers pay more money for Chinese manufacturers at time when inflation is beyond troublesome. American workers and farmers are not being rewarded with new buyers from the PRC. And still, we embrace a possible increase in punitive trade actions against a major producer of goods that Americans have come to depend on. Wal*Mart anyone? “The Biden administration said that new trade tools are needed to confront China, which for two decades has failed to keep promises to pursue market-oriented policies that it made to join the World Trade Organization.” MSM/Bloomberg, February 16th. New tools? Because the old ones failed?

I’m Peter Dekom, and protectionist trade barriers to “keep American jobs” have always backfired and at least hurt one major segment of the American people, usually consumers, and where retaliation happens (all the time) American labor as well.