EconoMatters, Rethinking America

Trump: Right on Trade

The Republican frontrunner reflects the U.S. electorate’s deep frustrations on the economy.

Credit: STILLFX Shutterstock.com

Takeaways


  • For all the talk of a faltering dragon, U.S. imports from China were up and exports down.
  • Trade with China and many nations is hardly market-driven. It actually hurts U.S. growth.
  • The U.S. trade deficit exceeds $500 billion a year, which is equivalent to about 4 million jobs.

Donald Trump has been savaged by economists and media aligned with establishment candidates for tough positions on trade — including a 45% tariff on imports to force China to the negotiating table.

Actually, he’s got it right.

Establishment Democrats and Republicans embrace free trade because it puts free markets first with benefits any decently trained economist should extol.

Unfortunately, trade with China and many nations is hardly market-driven. It actually hurts U.S. growth and victimizes America’s families.

China’s servant?

Worse, deteriorating conditions in China threaten to derail the U.S. recovery. Beijing’s statisticians report China’s growth slowed to 6.9% in 2015, down from double digits a few years ago. Western estimates are as low as 4%.

Building apartments and office complexes that attract no tenants, as well as entire ghost cities, counts in China’s GDP statistics — but adds little to productivity. Wasteful outlays have boosted debt to 260% of GDP.

Nervous about a looming credit crisis, Chinese investors are heading for the doors—selling yuan for dollars to invest in overseas real estate and securities.

This makes global stock markets panic and pushes down the yuan against the dollar — making Chinese goods artificially more price competitive against American-made products than underlying costs warrant.

For all the talk of a faltering dragon, U.S. imports from China were up, exports down and the bilateral trade deficit increased nearly $25 billion in 2015 — killing 200,000 American jobs.

Crippling debt is epidemic among emerging economies, as many borrowed in a mad race to expand manufacturing.

They now seek to cope with excess capacity and crushing interest payments by cheapening their currencies to juice exports and ship unemployment to the United States.

Those strategies have pushed U.S. manufacturing into recession — employment in export-focused durable goods is down 35,000 since June.

Trade should work better for America. We have a highly productive workforce and generate most of the world’s cutting edge innovations.

No politics-free zone

However, commerce doesn’t happen in a political vacuum. Governments put up tariffs, impose tough regulations on foreign goods and investment, and offer businesses subsidies to export more.

That’s why U.S. automobile and electronics manufacturers chose to locate their production in China. The same goes for other Asian venues.

How tough conditions are for U.S.-based industry is strongly determined by international trade agreements — those administered by the World Trade Organization and deals struck with individual countries.

The Obama Administration heralded the U.S.- Korea Free Trade Agreement as creating “countless new opportunities for U.S. exporters to sell more Made-in-America goods, services and agricultural products to Korean customers – and to support more good jobs here at home.”

Alas, since the agreement was implemented in 2012, imports from Korea have risen much more than exports. As a consequence, the bilateral trade deficit is up about $16 billion — the equivalent of 130,000 well-paying American jobs.

US trade deficits

Now, the Obama Administration is making similarly fanciful claims to win congressional approval for a Trans-Pacific Partnership. It would establish free trade with 11 other nations, including Japan, without cleaning up subsidies and currency manipulation.

Overall, the U.S. trade deficit exceeds $500 billion a year, which is equivalent to about 4 million jobs.

Lost manufacturing takes a big bite out of R&D spending and that goes a long way toward explaining why growth is so disappointing and median family incomes in the United States are down $4,000 since 2000.

Trump’s proposals for fixing trade — starting with China — address the salient issues of currency, trade barriers and subsidies. Those echo Mitt Romney’s 2012 platform — and candidate Obama in 2008.

At the same time, his proposals threaten entrenched interests in both the Republican and Democratic parties, which is why this is such a virulent political issue.

Simply put, it’s elites vs. the people. Trump is hardly reckless on trade — just a long needed agent for change.

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About Peter Morici

Peter Morici is a professor of international business at the University of Maryland in College Park. [United States]

Responses to “Trump: Right on Trade”

Archived Comments.

  1. On February 1, 2016 at 8:17 am sdewye responded with... #

    Might that turn out to be the opening salvo in a tariff war? Didn’t the Smoot-Hawley Tariff contribute much the Great Depression?

  2. On February 2, 2016 at 2:42 am rod260 responded with... #

    The other day I was with a retired Japanese businessman who was lamenting the failure of the Abe Administration to take steps to effect the many structural reforms that are needed for recovery from the decades of stagnation that have plagued Japan. “You (the Americans) met the challenge of Japanese merchantilistic competition in the 1970s and 1980s, and now your future is optimistic, while ours is one of despair.”
    The Trump proposal would have the US trash its treaty commitments, and would beopposed by every ally we have. No, we should rejoice in the peace and rising prosperity of our trading partners in East Asia. The Chinese have backed down from their bullying of Japan, and there were 4.5 million Chinese tourists to Japan in 2015. At the same time, we should supplement the safety net for the wounded warriers of the trade wars with East Asia. The Republicans are avid free traders, but trying in every way they can to unravel the safety net.

  3. On February 2, 2016 at 8:41 am Observer responded with... #

    As well as being economically illiterate, Mr Morici’s proposals would flagrantly violate international law and severely damage the prosperity of the US, just as the protectionist Smoot-Hawley tariffs did in the 1930s. It is sad to see an academic from a reputable US university spouting so many unsubstantiated assertions that do not stand up to serious scrutiny. Before Mr Morici writes any more columns, he should study some economics and read some history. He clearly has a lot to learn.