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.