Why Trump is right to take China on over trade

Why Trump is right to take China on over trade

PE Bias Grade : N/A

By: Allen Nitschelm on September 11, 2019 | Editorial Review

This is a review of the following Boston Globe Article:
Article Title The trade uncertainty principle
Date 09/07/2019
Article Link N/A
Syndicated From N/A
Journalist WSJ Editorial board
Article Summary

WSJ publishes another opinion critical of Trump’s China trade negotiations.

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I really like reading the Wall Street Journal. It’s news and opinions are completely separate, and I find the news reporting very balanced. Now, I may have blinders on because the Journal’s editorial pages lean conservative, so there is a danger that this leaks into the newsroom. I don’t see that, but maybe it is happening.

Most of the Journal’s Editorial board’s opinions are good, or at least thought-provoking. Unlike the Globe, the Journal routinely runs editorial opinions from the Left. There are several Liberal columnists and several guest columns that are published regularly. Letters are typically critical of articles that appeared in the paper, the proper role for a Letters section.

The WSJ’s editorial board has been remarkably consistent on their opposition to Trump’s trade war against China. They are free traders through and through, and don’t seem to know what to make of our President’s seemingly protectionist policies because conventional wisdom says trade protectionism doesn’t work and is a bad plan. So when Trump raises tariffs on the Chinese, yes, they say, he may have his reasons, but they just aren’t good ones. Free trade appears to be like a litmus test for the Journal, much like the press supports Free Speech. Sure, you can’t yell “Fire!” in a theater, but other than stuff like that, free speech is a core, bedrock principle of democracy. As one of our premier business papers, I think that’s how the WSJ sees free trade.

‘Yes, we don’t like what China does, but surely there is a better way to address their bad behavior than violating the principles of free trade? And if putting tariffs on hurts the American consumer, or our companies that use parts from China, or our businesses that export around the world, well, that is too steep a price.’ That appears to be the Journal’s position, and they have been remarkably consistent.

Before Trump, I might have agreed. I think most people had heard a bit about China’s requirement that companies open local subsidiaries and somehow that was enabling China to get access to trade secrets, but it was obviously voluntary by these companies. They must be getting something equally of value in return. And we knew that the Chinese government exploited workers in order to win contracts, but doesn’t that happen in the third world all the time? We’ve been shipping American jobs overseas for years and years, and our economy seems to be benefitting from the practice. The annual $500 billion trade deficit with China bothered me, but I wasn’t sure why.

But Trump brought the unfair trade practices and the danger of a perpetual massive trade deficit to the forefront. The perpetual trade deficits are confusing. When I read experts on this subject they would say it wasn’t harmful. We were getting goods back for our dollars, so the transaction benefits us. And eventually, those dollars have to be spent back in the United States. I remember hearing that in Economics 101 in college. But the spending back never seemed to happen, did it? The deficits continued ad infinitum. Instead of buying our goods, the Chinese (and the other countries with surpluses with us) used the money in other ways. They bought our debt (earning them interest). They invested in real estate. They took over our companies instead of buying our products. They used our dollars to buy influence in other countries. China has used it to become neighborhood bullies. It turns out that when you have a totalitarian country, their consumers don’t necessarily spend the dollars they are receiving in the same way that ours do.

Our very favorable terms with China also assumed that China needed the help (it no longer does, clearly) and it assumed that by doing trade, China’s authoritarian and military ambitions might be curtailed. It would be a modern, peace-loving, democracy- and capitalist-leaning Communist State.

Well, it has firmly remained a Communist state, but the hopes of moderation were pipe dreams. China is now more authoritarian and far more dangerous than before our economic transactions began. Their wealth has emboldened them to try to expand their empire. Like the Russians, the Chinese have become not just political adversaries, not just economic adversaries, but military adversaries.

Trump was right to identify the problem, to put tariffs on China to pressure them, and to start negotiations. He is right to insist that the deal must include stopping forced technology transfers, equalizing tariffs between the two countries, and protection of intellectual property. These steps will naturally reduce the trade deficit over time and countries can compete on an equal footing.

If the Chinese aren’t willing to trade fairly with us, then our markets should be insulated from their bad practices and we should develop other sources. China has shown that “globalization” of supply chains can work and can benefit countries that perform the work. Let’s give India, Vietnam, Mexico, and other countries the work that China doesn’t want to do on an equal basis.

This may cause even more short term pain, but it is the right policy because, besides yesterday, now is the best time to implement it. Things will only be harder in the future, and they will be impossible without someone like Donald Trump in the White House.

I know the WSJ is never going to change its thinking on trade policy, but they are just wrong on this one.

 

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