The United States imports from most countries pretty freely. Not all, particularly in agriculture. What generally determines how much we import from any given country is how much Americans want to buy from that country. If those countries want to build factories in the United States, great. 

However, that kind of importation and investment opportunity is not always a two-way street. Cooperation between industry and government here, as big as it feels to us, is not nearly as big as it is in some other countries, particularly Japan and China. Japan was the main issue to us in the seventies and eighties but these days it’s China. 

China doesn’t need to use tariffs (Japan didn’t either) to limit most imports; they just decide centrally to limit imports. This isn’t protectionism in a classical sense in that it doesn’t necessarily involve tariffs but it functions as protectionism. And it can be quite dangerous. 

To illustrate what kind of dangerous, I’ll tell you a story about the American television set manufacturing industry. In the early seventies, the US had a monopoly on color televisions because we invented them. American manufacturers imported cheap black and white sets from Japan to fill out their line. At one point, however, they decided they needed low end color sets so they gave Japan color TV technology. For free. 

When Japan got that technology, the Japanese government immediately made a few decisions. They assigned manufacture to a few companies. They forced banks to loan those manufacturers money but there was no risk involved as the sets would be sold to Japanese customers at high margins with no foreign competition allowed into the country. In this way, Japanese manufacturers developed very competitive economies of scale. To maintain those economies of scale, they needed to manufacture more sets than the Japanese public was buying, so they sold sets below cost - “dumping” - in the US, knowing they’d make up their margins in Japan. 

American manufacturers were now faced with competitors selling more cheaply than they could. The normal reaction would be to dump in Japan to get them to stop, but the Japanese government refused to allow imports. The US government, philosophically in favor of free trade and not understanding the issue, refused to help. Within a year, there were no more American-owned television set manufacturers. They were all driven out of business by unfair international competition. 

When we do business with China, we have a variety of problems. They can build factories here but the only way we’re allowed to build factories there is with major Chinese ownership and the transfer of technology to China. In other words, in order to get a crack at the Chinese market, we have to hand them the ability to outcompete us with our own technology. In addition, there is a distinct lack of respect for intellectual property, meaning patents are not always respected. At least they’ve cracked down on counterfeit American goods. 

Like Japan did, China limits American imports. To what extent? We account for nearly 20% of China’s exports by ourselves. But the other way? China imports well under half from us of what the European Union does. China imports well under half from us of what Canada does. China imports a little over half of what Mexico does. To put things in perspective, Canada has a lower population - and a smaller economy - than California does, while China has roughly one out of every five people on Earth and, these days, a substantial middle class.

The United States has mostly avoided tariffs because free trade is a religion to a lot of people here. However, free trade in only one direction is not real free trade, and there is no reason we shouldn’t be looking out for our own interests. 

On the principle of using tariffs to attempt to rectify the scale of this imbalance, I agree with the President. 

Because we are a way bigger customer of China’s than they are of ours, tariffs will do way more damage to them than to us. Trump is right about this, though he doesn’t generally explain why, so I am. They have way more to lose. 

What tariffs in theory could mean, particularly if they stay in place for a long time rather than successfully getting concessions out of China, is that some American manufacturers would have enough protection to compete with China pricewise within the United States. This could absolutely increase the number of manufacturing jobs, depending in part on the degree of automation in any given industry. 

How China is reacting is by increasing anti-American sentiment in China. They have to do this because they will need to displace the public’s anger at the government if the economy deteriorates due to a drop in exports. It would probably make more economic sense to them to back off, but in terms of having a negotiating position they need to signal Trump that they’re willing to live with this if they have to. Negotiations aren’t over. 

I’m by no means sure that Trump is playing this as well as he could. However, I appreciate that he is playing it at all. This is one of the few things I hoped Trump would do as a result of his business background and as a result of his looking out for America’s economic interests internationally. 

This is not an endorsement of Trump. God knows I wouldn’t do that. However, in this case as a matter of policy, he is doing something that every President since Carter should have at least considered. 

Views: 206

Comment by alsoknownas on May 20, 2019 at 6:42pm

Now my head hurts.

Comment by Ron Powell on May 20, 2019 at 7:04pm

I don't believe that Trump really knows what he's doing.

However, even a broken clock is right twice a day.....

Comment by Ron Powell on May 20, 2019 at 7:22pm

BTW; There's more comprehensive and comprehensible economic policy in this post than there is in the White House....

Comment by Maui Surfer on May 20, 2019 at 9:15pm

I have said this before ... FUCK the Midwestern, western and southern farmers. We DO NOT NEED THEM. In Hawaii vegetables grow like vines. And, anywhere in the world you can grow you own on rooftop and terrace gardens, even having architects design farms into buildings, and using grow lights in winter ... WE DO NOT NEED THEM. not a fucking bit.

Comment by Maui Surfer on May 20, 2019 at 9:16pm

OH, and the Chinese, who copy everything in sight, we quickly adapt to this as well. Agribusiness is doomed, who wants pesticide food anyway ...

Comment by Steel Breeze on May 21, 2019 at 5:19am

i aint well versed on this whole global economics thing,but i've had some folks break it down to me in simple terms,mainly business owners i know.as best i understand it i agree with you and the President......and kudos for giving credit where due....takes an honest perspective for that....

Comment by koshersalaami on May 21, 2019 at 5:39am

What are we worried about the farmers for? Because some of them don’t like the reduction in exports? That happens in any business. A lot of things are about to get more expensive, but the result is we’ll probably see better jobs, and that will make the prices worth it. Unless they reach an agreement, in which case US exports will rise and we’ll see more jobs for that reason. 

Agribusiness is not doomed. Hawaii can’t feed a growing world population. Not enough acreage. The US feeds a whole lot of people. Rooftop and terrace gardens are great, but can they handle all of the food needs of whoever grows them? Again, not enough acreage. 

As to whether Trump knows what he’s doing, he witnessed what happened with Japan and I understand it affected him. He may not know the specifics, like he apparently thinks the Chinese pay our tariffs, which they don’t, but the concept of limiting imports from a country that limits ours is something he does understand. This was my biggest hope when he became President. I didn’t think he’d do much else right. 

Comment by Ron Powell on May 21, 2019 at 6:45am

Tit for tat is not sound or good economic philosophy or pokicy....

If that is the extent of his economic knowledge and awareness, I would continue to argue that there is more economic insight and information in this post than there is in the White House....

Comment by alsoknownas on May 21, 2019 at 7:02am

And I would argue that any endorsement of the man or his actions is misguided. Little bits of "Sure but did you know he..."?, added up to votes, whether counted fairly with the Electoral College's over-ride or not,then led to him being in the White House.

I cannot write like you. Nobody at this site can, "honest perspective" or not.

But I can edit for brevity. It's a great learning experience if only it were to be a simple explanation of the effect of tariffs. It could be accomplished without any endorsement of the buffoon who wants to take credit, for a scheme others have urged him to do, to keep him in office and their own jobs secured 

To me, the imagining of tariffs' potential to create better jobs pales in comparison to the real effect of them being a hidden tax from a liar.

Comment by koshersalaami on May 21, 2019 at 7:41am

Ron, it’s not tit for tat, it’s Knock This Shit Off Or It’s Going To Cost You. In this case I agree with the message, particularly toward an entity that is not ultimately benign. 

AKA, though I doubt Trump’s point is to create a hidden tax, I can see that as a viewpoint. In terms of endorsing an action, how I maintain my credibility is by judging actions rather than people so that when I judge an action, people get that I am judging it as an action and not because of its source. To judge actions specifically because of their source is to exercise a double standard. Given how much I scream about double standards, it would be the height of hypocrisy for me to engage in using them deliberately. 

If someone were to write here that, I don’t know, Hitler hated the German people, I would defend him because a false accusation is a false accusation, Period. Clearly this would not constitute an endorsement of Hitler on my part. I am not going to condemn an action on the grounds that Trump was responsible for it. 

That does not constitute a general endorsement of Trump. The man is in most respects an abominable and dangerous President. I think he reached office due in part to Russian interference in our election. I think he should be impeached. But I think he’s fundamentally right about the concept of tariffs. Our previous trade relationship with China was not in the long term good for the United States. 

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