President Donald Trump issued more protectionist rhetoric on trade this week, declaring on Thursday that it was time to end America’s “massive trade deficits” with China and the “job losses” that have resulted:
The meeting next week with China will be a very difficult one in that we can no longer have massive trade deficits…
— Donald J. Trump (@realDonaldTrump) March 30, 2017
…and job losses. American companies must be prepared to look at other alternatives.
— Donald J. Trump (@realDonaldTrump) March 30, 2017
These tweets are economically illiterate. Here are five reasons why.
1. The trade deficit with China means nothing. International trade attorney Scott Lincicome explained in The Federalist that the perfect example that illustrates this is the iPhone, as each Chinese iPhone imported into America accounts for around $300 in trade deficit, “yet the Chinese get only about six bucks worth of value from the item’s assembly and shipment.”
“Meanwhile, the U.S.-based Apple and its affiliates get hundreds of dollars from an iPhone’s final U.S. sale (for things like design, marketing, and even some manufacturing),” wrote Lincicome. “Indeed, the only ‘analysis’ tying the U.S.-China trade balance to American jobs is a bogus one from a left-wing, union-run, and union-funded outfit that has been so repeatedly debunked by legitimate experts that it’s only cited by protectionist unions and political hacks like Chuck Schumer.”
Additionally, there is no evidence to suggest that trade deficits hurt the U.S. economy; in fact Lincicome pointed out that, according to the Cato Institute, “the U.S. economy has grown more than three times faster during periods when the trade deficit was expanding as a share of GDP compared to periods when it was contracting.” For Trump to correlate trade deficits with job losses does not match up with basic economics.
2. The job losses that Trump bemoans are due to automation, not trade deficits. Between 2000 to 2010, 5.6 million jobs in the manufacturing sector were lost, yet output and productivity grew. The reason: automation. Manufacturers have found it cheaper and easier to replace human labor with technology, as proven by a Ball State University study that found that 85 percent of manufacturing job losses were due to automation. Implementing protectionist policies won’t stop such job losses.
3. China manipulating their currency does not harm the American economy. One of the issues that Trump will likely bring up in his meeting with China regarding the trade deficit is how China engages in “unfair trade practices,” most notably manipulating their currency. But at the end of the day that only hurts China’s economy. As Daily Wire editor-in-chief Ben Shapiro pointed out, China devaluing their currency “makes it cheaper for our consumers” to purchase Chinese products. Such a move has only been detrimental to China’s economy, as they are headed toward a potential financial crisis. But should Trump hammer China over their currency devaluation, he’s not helping to ameliorate American job losses at all.
4. Trump is risking the ignition of a trade war. If Trump were to slap a tariff on China to lower the trade deficit, China would likely retaliate with a tariff of their own. According to Lincicome, this “would effectively close the United States’ third-largest export destination – a devastating result for American exporters.”
5. Protectionist policies stemming from misguided efforts to shrink the trade deficit would only harm the economy. Not only would a tariff on China result in higher prices on basic goods and services that would disproportionately hurt the poor and middle-class, it would also harm businesses that rely on Chinese imports. For example, Shapiro noted, “Jim Geraghty gives a good case example: our 2009 tariffs on Chinese tires, which resulted in – at best – $48 million in ‘additional worker income and purchasing power,’ at the cost of $1.1 billion in American money spent on more expensive tires, plus another $1 billion in the poultry industry thanks to Chinese retaliatory tariffs.” Additionally, the imposition of tariffs on Chinese tires did nothing to benefit the American tire manufacturing industry.
.png)
.png)
