If Trump Wants To Get Tough On Trade, He Should Prioritize China, Study Says

Opening up trade with China cost the U.S. 3.4 million jobs, according to a new report.

WASHINGTON ― President Donald Trump has made Mexico the central focus of his push to reform U.S. trade policy, singling out the neighboring nation Thursday with a proposed 20 percent import tax that the White House subsequently walked back.

If Trump is truly committed to saving American jobs lost to unfair trade practices, though, reshaping trade with China should be the priority, according to a new report by the Economic Policy Institute, a progressive think tank.

The report, authored by EPI senior economist Robert Scott, estimates that China’s admission into the World Trade Organization, which vastly expanded U.S.-China trade, cost the U.S. 3.4 million jobs from 2001 to 2015. Three-quarters of the losses ― 2.6 million jobs ― were in manufacturing, according to Scott’s analysis.

“We need to be targeting the countries that generate the vast majority of our trade surplus: China, Japan and Germany,” Scott told The Huffington Post.

“Mexico is not engaging in unfair trade,” he added. “We are an integrated North American economy, and Mexico helps us compete against China. So to the extent we discriminate against them, it is going to hurt, not help.”

To come up with his figures, Scott first calculated the net U.S. goods trade deficit with China by industry, subtracting the value of American exports to China from Chinese imports to the U.S. over the period he examined. Using official data, he then estimated how many jobs it would take for those industries to generate the equivalent of that amount if the those goods were produced domestically instead.

Within manufacturing, Scott found that trade with China displaced over 1.2 million computer and electronic parts-making jobs, 204,900 apparel jobs and 57,100 jobs in the steel and aluminum industries, among other affected sectors.

Workers directly affected by trade with China typically must settle for lower-paying jobs. Displaced workers lost a total of $37 billion in wages in 2011 alone, according to a 2013 analysis by Scott that he cited in Tuesday’s paper. And that figure likely understates the impact, since the threat of offshoring to China also diminished the bargaining power of workers whose jobs remained in the United States.

Scott’s findings are consistent with those of other studies. An August 2014 paper by MIT economists estimating that trade with China cost the U.S. 2 million to 2.4 million jobs from 1999 to 2011.

A feature that makes Scott’s study stand out, though, is his inclusion of interactive digital maps showing the effect of the job displacement on every state and congressional district. The states hardest hit by these losses as a percentage of total state employment may come as a surprise. Oregon, California, New Hampshire, Minnesota and North Carolina lead the pack.

The three most affected congressional districts are in California. The fourth-most affected district is in Texas and the fifth is in Oregon.

Scott acknowledged that if trade with China had not opened up, some companies would have introduced automation or otherwise modernized their factories in ways that reduced employment anyway.

But he insisted that without the goods trade deficit there would nonetheless be millions more domestic jobs than there are now.

“There has been productivity growth in manufacturing for generations,” he noted, which is often the result of technological upgrades. But those changes did not result in such precipitous employment drops until recently, he said.

Scott’s paper is not an argument against trade with China ― or any other country ― however. He instead points to myriad ways that China games the international trade system to give an unfair advantage to its products, and Scott calls for taking a tougher stance on its tactics.

The accusations are by now familiar. China subsidizes its manufacturing exports, allowing its companies to “dump” goods overseas, or sell them at below-market prices. Its system of subsidies also encourages Chinese firms to maintain excess production capacity that in turn creates an incentive to dump goods.

And China’s longstanding policy of stockpiling U.S. Treasury bills and other foreign assets to devalue its currency has allowed its companies to suck up massive market share, Scott argued.

Many economists claim that China has stopped artificially devaluing ― or “manipulating” ― its currency in recent years. But Scott and others, including Dean Baker of the Center for Economic and Policy Research, maintain that the Chinese central bank’s massive reserves of foreign assets, including U.S. bonds, continue to depress its currency.

Then-presidential candidate Donald Trump speaks in Mexico City in Aug. 2016. Trump is considering using a 20-percent import tax to get Mexico to fund the border wall.
Then-presidential candidate Donald Trump speaks in Mexico City in Aug. 2016. Trump is considering using a 20-percent import tax to get Mexico to fund the border wall.
Hector Vivas/STR/Getty Images

In the short term, Scott recommends that Trump immediately bring dumping cases against China at the U.S. International Trade Commission, where those claims can be processed faster than at the WTO. Like many progressive experts, Scott is cautiously optimistic that Robert Lighthizer, Trump’s pick for U.S. trade representative, who is a staunch critic of Chinese trade policies, will be willing to press these cases judiciously.

Trump can also use the threat of tariffs on Chinese imports to pressure China to scale back excess production and take measures to dramatically reduce the value of its currency, such as selling its Treasury bonds. The U.S. could then broker a multilateral agreement to boost China’s currency that included Japan and other nations that Scott said also devalue their currencies to compete.

In the long term, Scott believes that the president should work with Congress to rewrite U.S. trade law, much of which was written before China’s rise as a global trade power and does not give the U.S. government adequate enforcement powers.

One thing the U.S. cannot wait for, according to Scott, is for American companies to take on China’s trade policies on their own. American companies that produce in China are already too dependent on Chinese subsidies and incentives to stand up to the government, he argued.

“It is a case where we have a conflict between what is in the interests of the United States and in the interests of the companies, who we have in the past relied on to bring these cases,” Scott said. “That’s the reason we need the government to intervene.”

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