China Trade War Didn’t Boost U.S. Manufacturing Might
The Wall Street Journal reports China Trade War Didn’t Boost U.S. Manufacturing Might.
President Trump’s trade war against China didn’t achieve the central objective of reversing a U.S. decline in manufacturing, economic data show, despite tariffs on hundreds of billions of dollars of Chinese goods to discourage imports.
The tariffs did succeed in reducing the trade deficit with China in 2019, but the overall U.S. trade imbalance was bigger than ever that year and has continued climbing, soaring to a record $84 billion in August as U.S. importers shifted to cheaper sources of goods from Vietnam, Mexico and other countries. The trade deficit with China also has risen amid the pandemic, and is back to where it was at the start of the Trump administration.
Another goal—reshoring of U.S. factory production—hasn’t happened either. Job growth in manufacturing started to slow in July 2018, and manufacturing production peaked in December 2018.
Small Success With China, Bigger Losses Elsewhere
An industry-by-industry analysis by the Federal Reserve showed that tariffs did help boost employment by 0.3%, in industries exposed to trade with China, by giving protection to some domestic industries to cheaper Chinese imports.
But these gains were more than offset by higher costs of importing Chinese parts, which cut manufacturing employment by 1.1%. Retaliatory tariffs imposed by China against U.S. exports, the analysis found, reduced U.S. factory jobs by 0.7%.
Trade Wars are Good and Easy to Win
In March of 2018 Trump boldly announced in a series of Tweets “Trade Wars are Good and Easy to Win”.
These were my comments:
Trade Wars Not Winnable
Those who say trade wars are winnable aren’t thinking, they’re spouting nonsense.
Economic Madness
The bottom line is simple: If its good for the consumer, it’s good policy.
Instead, Trump is promoting trade wars that mathematically cannot be won.
For a mathematical explanation of trade deficits, please see Trump’s Tariffs Show He’s “Clueless About Trade”.
Also consider Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?
Updated Picture
NAFTA Not to Blame
The WSJ inspired this update but I have blasted Trump’s tariff nonsense for years.
Manufacturing peaked 14.5 years before NAFTA. Then manufacturing rose for years after NAFTA (but never reached that peak again).
This all goes back to August 15, 1971 when Nixon ended gold convertibility.
At that time, Nixon’s treasury secretary John Connally famously told a group of European finance ministers worried about the export of American inflation that the “dollar is our currency, but your problem.”
Let’s revise Connally’s statement to make it current.
“Our Currency And Our Problem”
The source of global trading imbalances, soaring debt, declining real wages, and the massive rise of the 1% at the expense of the bottom 90% followed after Nixon closed the gold window.
In response, US budget deficits soared, US treasuries became a key export.
It is impossible for tariffs to fix these fundamental problems especially after Republicans joined the Democrats in no longer giving a damn about deficits.
The Fed exacerbated the problem with cheap money and low interest rates to spur the economy.
In the process the Fed blew three economic bubbles in succession, each with a bigger amplitude.
Finally, due to robotics, manufacturing jobs are shrinking everywhere, even China.
Trump had lost his trade war well before COVID struck https://t.co/bbGxugCw6l
— Noah Smith 🐇🇺🇸🇺🇦 (@Noahpinion) October 26, 2020
If you think tariffs will bring back jobs in this setup, you may as well believe in the tooth fairy.
Correction
I originally posted NAFTA started January 1, 1974. It should have been January 1, 1994. The chart showed the label in the correct place but I mistyped the date.
Mike “Mish” Shedlock
Ultimately no one wins in a trade war but USA is definitely losing because price per goods is high in the USA which means you would make more per sale than anywhere else in the world (perhaps except China) but the problem is there is little money circulating in the US economy where the wealthy are holding it and so because of this the people are the ones who are hurt especially now with the pandemic where the only people who have purchasing power are 40% of the people while the other 60% are living pay check to pay check. You can just see it when you go shopping, almost no one is shopping at the more higher end stores now.
I think when it comesto Trade wars with China, China automatically wins. I say this because China is the world leading producer of goods and in the US case specifically where they import so much of their stuff, they become too dependant on production outside (anywhere you can name, either China or Cambodia, Mexico, Indonesia, and so on) which means the US are the ones who needs them, not the other way around. The US brought this on themselves
tRump could actually bring back the manufacturing jobs, if he somehow can force the American workers to accept a 1/10 or less of their current salary.
Correction thanks to@lurki
I originally posted NAFTA started January 1, 1974. It should have been January 1, 1994. The chart showed the label in the correct place but I mistyped the date.
Thanks!!
I hope the first thing Biden does when elected is to drop the tariffs on Canada. They were the worst idea ever, and the negative repercussions are still playing out daily in both countries. What an incredibly stupid move.
I see the monetary policy as a positive feedback loop. The congress gave the Fed total control of the money supply….and the Fed gave the congress a checkbook that never has to be balanced. It’s not surprising that created problems.
The worst part is that there is no real way to reform….how would you get from where we are to where we should be….without a crash of biblical proportions?
It’ only strenghtens the u.s. to see its economy integrated with Canada and Mexico. Each country has comparative advantges along the food chain and the ability for each to sell to other a win win
Canada has protectionist tariffs and protectionist regulations. Fair trade requires not just free trade.
“It is impossible for tariffs to fix these fundamental problems especially after Republicans joined the Democrats in no longer giving a damn about deficits. “
With all due respect, didn’t this happen 40 years ago in the 1980s? Since then it has been the deficit only mattered when the other party was in power.
I have a trade deficit with my favorite restaurant. I don’t view it as bad since I always leave with a full stomach
link to youtube.com
This is not even funny anymore… Biden is so senile, he cannot even remember who he is running against. The man is unfit for office so voting for him is simply a dereliction of duty of any voter who does so….
Of course Biden, being on China’s payroll, will quickly remove all tariffs, and ship as many US jobs as possible to China. That is what globalists do.
tRump’s tariffs policy may not make sense job-wise, but it make his supporters happy. That’s the whole point.
Krugman makes a similar point, that the Trump policies had little effect on the trade deficit: link to gc.cuny.edu
Put crudely, to get more manufacturing in the USA (and reduce the trade deficit) you need a lot more “pain” than Trump inflicted. Not sure most Americans, who are not engineers nor even want to do science and engineering, would be willing to put up with such pain for possible long-term gain.
I’m not a an o Krugman but I believe his claim to fame was on trade theory
There appears to be very little difference in the trade deficits during Obama and Trump. The real difference is Americans are subjected to the Trump trade tax, which means more money is leaving my pocket to pay for items that have tariffs.
some companies have benefited others have not. If you you finish steel and use partially produce steel as a base material you’re business model is gone. If you are an industrial company that purchases raw materials like a car company does with steel you are also hurt. Employment in the steel industry has not gone up as a result of Trump’s protection as well
There’s far more manufacturing in this country by companies that are involved in using steel than those making it. If Trump were trying to maximize employment or increase u.s. production the policy makes no sense. if the goal was to increase profit mrargins of u.s. major steel companies it porbably did that
Part of the reason for the big drop in manufacturing in the early Bush, Jr. years was due to his steel tariffs, and yes, steel tariffs under Trump similarly crushed manufacturing.
I knew a guy that made wire clothes hangers in Kansas City. The name of the company was “Midwest Wire Hanger”. He was struggling because he had to compete with slightly cheaper Chinese hangers, but his quality was better, so he retained most of his customers. Once the steel tariff went into effect, his cost of steel rose 25%, and since that was 80% of his cost, his hangers went up 20% in price. Chinese hangers, however, were unaffected, because they were made overseas, and they didn’t have to pay the tariff. He closed about 6 weeks after Bush imposed the tariff, as did every other American maker of wire hangers. The Chinese quickly bought all his equipment and shipped it to China. With him gone, American steel manufacturers lost another customer.
So, the effect of steel tariffs is to nominally increase demand for American steel, but to kill all manufacturers who make products from steel. As the number of American manufacturers making products from steel falls, the demand for American steel eventually follows, so you end up with less steel-making jobs, too.
“money is leaving my pocket” This happens when you deal with trumps, voluntarily or involuntarily.
What is Jo Jorgensen industrial policy? I know she doesn’t like the Trans-Pacific Partnership” but she didn’t give details as far as I see. What is her plan or lack of? You Libertarians here should be giving me reasons to vote for her.
Jo Jorgensen’s campaign website says she opposes adding or increasing tariffs on products imported into the country
sounds like she’s OK with tariffs if she didn’t put them on ? She’s awful!!
Jo Jorgensen’s campaign website says she opposes the North American Free Trade Agreement (NAFTA).
More awful? Sounds like she’s protectionist
Do you support the Trans-Pacific Partnership (TPP)?
JO JORGENSEN VOTERBASENo, there are too many hidden provisions in this specific agreement
Anotther loser
Libertarians want all members of society to have abundant opportunities to achieve economic success. A free and competitive market allocates resources in the most efficient manner. Each person has the right to offer goods and services to others on the free market. The only proper role of government in the economic realm is to protect property rights, adjudicate disputes, and provide a legal framework in which voluntary trade is protected. All efforts by government to redistribute wealth, or to control or manage trade, are improper in a free society.
That’s the theory. I note that they say nothing about breaking up monopolies for example. I guess those are encouraged. It seems to me that voting Libertarian has a “cool” factor attached to it. It gives you the impression that you are up there with all those tech billionaires and that somehow you are intellectually equal to them. It gives me a nice warm feeling to be in he club like having a cool but rare hobby. Does it impress women at parties? If yes then I am in.
Jo Jorgansen may be the most protectionist libertarian we’ve ever had. Should be anathema to what being a libertarian is all about. She’s clearly pandering to the zeitgeist. I have no idea if she really believes this or is taking the country’s pulse. But if she’s a true libertarian she should be supporting trade deals that lower barriers
Reply to Sechel: Since when are trade agreement free trade? Trade agreements are the opposite free trade. Think about it, the central planners of two countries getting together to determine which goods and service that their respective citizens can trade freely and which they cannot; that is not free trade.
Reply to Doug’78: Where do you think monopolies come from? The free market? In a libertarian world, government would be so small and limited that competition would be completely unregulated and largely unfettered such that monopolies could not possibly exist. No regulatory interconnectedness, no government subsidies, support, trade protection, regulatory protect, etc.; at all. A “free and competitive market” means encouraging all competition, in all markets, from wherever in the world the source is.
Very specific details that I endorse 100%
Will write them up later
And in the agricultural world of tariffs…With the latest $14 billion farm aid package announced in Wisconsin on Sept. 17, federal payments to farmers are expected to reach a record $51.2 billion this year. The government’s share of farmers’ net cash income will also rise to 39.7%, the biggest in 20 years….
So much for the free marketeers and the bastions of rugged self sufficiency.
Good thing America isn’t socialist. Sure dodged a bullet there.
“The source of global trading imbalances, soaring debt, declining real wages, and the massive rise of the 1% at the expense of the bottom 90% followed after Nixon closed the gold window.
In response, US budget deficits soared, US treasuries became a key export.
It is impossible for tariffs to fix these fundamental problems especially after Republicans joined the Democrats in no longer giving a damn about deficits. “
Thank you for stating this so plainly! Now and then Peter Schiff talks about the loss of “productive jobs” via the loss of the dollar tie to gold in 71′, but I don’t think many people understand what he’s saying. Further, you are right about automation/robots.
Kudos to this write-up.
Trump’s tax cuts may have contributed to our deficits. The cuts tend to increasing private spending on household consumption of goods and business investment goods.
Trump also views our bilateral trade deficits as if that makes the U.S. a loser. Trump believes deficit means other countries are taking advantage of the U.S. Whether a trade deficit represents a problem depends on whether our spending is prudent or profilgate.
Of course. Also, the Covid stimulus was targeted to increasing the deficit as well by encouraging consumption at a time when services were not a spending option.
oops… I meant the peak in 1979 not 1974
Just want to point out a few numerical booboos. NAFTA started in 1994 not 1974 as labelled on the chart.. Therefore the manufacturing peak in 1974 was 15 years before NAFTA.
The arrow on the chart, however, points to the correct place for the start of NAFTA.
Does anyone really want to fix the trade deficit which would mean the U.S. would most likely need to cut consumption , reduce U.S wages or both?
Why do you say reducing trade deficit would reduce wages?
Exploding US exports would mean increase demand for US wages.
That would INCREASE wages,
No one “wants” to, but the reality is that one day the trade deficit will rectify itself- probably through currency devaluation.
At some inevitable point in the future, the USD will cease to be the reserve currency. When that happens, the trade deficit will vanish because the dollar will fall. The standard of living will plummet, too, and the US debt will matter.
Reducing the trade deficit requires fair trade. Europe, China, Canada… all have huge protectionist tariffs and protectionist regulations that relegate American exports to the dream bin. Here’s an example – US goods should not get VAT tax’d, after all, the EU is not funneling back their considerable booty to subsidize American companies.
No, they shouldn’t want to fix it because, as you imply, the only way to decrease the trade deficit is by making the U.S. a less attractive place for foreigners to invest. Trump has done so much harm in elevating a problem that can’t be fixed without creating bigger problems. Hell he’s got even Mish believing trade deficits are this big problem.
I think its an open question as to whether the deicit is good or bad. It depens on whether we’re spening wisely
Huh? Spending wisely means buying from those who sell it cheapest. That is what accounts for the Wealth of Nations according to Adam Smith way back in 1776.
Our exports are what we spend; they are the things we give up and can no longer benefit from as nation. Imports are those things we receive and get to use for our collective personal benefits. So spending wisely would mean sending out as few goods as possible in payment for as many goods as possible? Isn’t that what we also do in our personal lives? No different on a national level.
Not necessarily You equate buying a business or a home with taking a vacation or taking a Trump University course
Man you totally lost me on that one.
Let’s just say we both agree that tariffs are bad, free trade is good and leave it at that.
From the same article
Mr. Trump is one of a long line of U.S. presidents to use tariffs to protect favored industries. President Obama put steep tariffs on Chinese tires, President George W. Bush imposed tariffs on steel and President Reagan hit Japanese televisions and computers.
But Mr. Trump’s enormous increase in tariffs on Chinese goods represented a sharp departure in post-World War II economic history. Since the war, the U.S. has led round after round of global trade talks aimed at reducing tariffs. No longer.
“This is the biggest use of tariffs since the Smoot-Hawley tariffs” during the Great Depression, said Chad Bown, a trade expert at the Peterson Institute for International Economics. “The economic impact is going to take years to play out.”
Trump has adopted a carousel tarriff strategy. The tarrifs are random and nobody knows how much or when. It’s designed to destabalize trade
Previous Presidents resorted to tariffs , saw they didn’t work and backed away. Trump doubles down . His econonomic advisor Peter Navarro lacks formal econoomics training. It’s unclear to what extent Navarro believes in his hoakey theories versus how much he’s enabling his boss who has called for tarriffs since the 1980’s when he thought Japan was the enemy and not China.
Journal correctly points out that Trump’s policies have not aided the manufacturing sector.
Tariffs are not the primary tool that would to bring US jobs back, only a smaller tool
THIS is the bigger reason the US lost jobs and it’s the way to bring them back:
The Federal government gives tax subsidies to corporations that agree to fire American workers and transfer their jobs to foreign nations. I have literally been on job interviews and had the managers tell that to my face, have former co-worker them that, and have read about those subsidies.
End the subsidies. Also, we need to have an industrial policy like most other nations. We already DO HAVE an industrial policy (higher education, big finance), we just don’t call it that.
WHY TRUMP WILL LOSE IN ONE (1) HEADLINE:
“Apple’s Shifting Supply Chain Creates Boomtowns in Rural Vietnam” – Bloomberg
Had the headline read “Rural America” Trump might well be ahead in the polls right now. The corporate media won’t let you read such ideas on the MSM.