Trump's China Trade War Won't Help American Workers

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(Bloomberg View) -- Chinese President Xi Jinping gave a major address Tuesday that answered some of the Trump administration’s major criticisms. Xi pledged to improve the protection of intellectual property, along with increasing imports and offering a better environment for foreign investment.

So have the trade hawks in the Trump administration won?

Not so fast. Much of this has been offered before. But given the context of the speech, I am allowing a small bit of optimism about the Trump administration’s trade strategy. And it’s important to keep in mind that on two goals in particular, President Donald Trump is right on target.

The first critically important issue -- mentioned specifically by Xi -- is the forced transfer of technology from U.S. firms to Chinese partners as a condition of doing business in China. Over the past decade, the Chinese government has repeatedly committed to eliminating these requirements, but has not done so. And so Chinese companies continue to acquire U.S. technology, giving themselves a competitive advantage.

This is bad enough, but when coupled with China’s history of stealing U.S. intellectual property outright, Trump’s argument that we have been in a trade war with China for years is reasonable. You could credibly argue -- as columnist Greg Ip has -- that China started that war.

Secondly, the president is correct in trying to use economic policy for the broader goal of helping U.S. workers who have been displaced by global trade. Although we have always understood that trade creates winners and losers, economists and policymakers alike were slow to understand the length and difficulty of the economic transition that some workers and localities would face as a consequence of increasing imports from an economy as large as China’s.

These are two worthy goals. But the administration’s strategy to achieve them is ill advised. By ordering tariffs on steel and aluminum imports from many nations and making absurd statements that trade wars are “easy to win,” the president has conflated economically illiterate protectionism with sensible, targeted measures to counteract China’s specific IP actions.

More than that, the administration’s general hostility toward the post-World War II global economic system has alienated potential allies, making it difficult to build a coalition to pressure China to live up to its obligations as a global economic power. And whatever upside there could be to tariff threats made against China specifically, the administration undermines itself with equivocation intended to calm markets after each round of tit-for-tat.

A better strategy to stop forced technology transfer and related IP concerns would have been to forget about imposing broad tariffs on multiple nations and focus action on China specifically, attempting to bring along as many allies as possible. This could be done much more aggressively than similar efforts in the past. It is not too late to pursue that strategy.

The broader goal of helping workers is hindered by a fundamental misunderstanding: The administration believes that trade policy is to blame for workers’ troubles and that trade policy can solve them.

The U.S. had an open economy long before China’s 2001 accession to the World Trade Organization, and the growth of developing nations around that time was always going to create change in the U.S. economy. That change was always going to benefit some Americans at a cost to others.

Presidents of both parties have sought to strengthen the global economic system and welcome emerging economies into it. That was the right decision in the face of inevitable change. The policy mistake along the way, however, was failing to support workers adequately as they experienced that transition.

Likewise, the strategy today should not be to erect barriers around the United States. Protectionism, to say nothing of an all-out trade war, would only lower the real income of the average worker. Instead, the administration should find ways to expand economic opportunity for workers who are at risk from globalization and international trade or -- more importantly -- from changes in technology, or from any number of challenges.

Expanding opportunities for work-based learning can build skills and help workers to earn higher wages in an economy with more automation. Expanding refundable tax credits for at low-income, working households can both pull more people into the workforce and lift them from poverty. Regulatory barriers like occupational licenses should be mitigated. Infrastructure projects should be considered to strengthen transportation networks -- helping workers to more easily commute from affordable areas into the dense hubs with the best employment opportunities.

Rather than focus on broad anti-trade measures, these are the sorts of steps that could make a real difference on the economic issues Trump has highlighted since his campaign.

Ultimately, I’m skeptical that Xi’s speech foreshadows real change in China’s behavior. But even if China stops cheating and undermining the global system, the challenges facing the U.S. working class will remain.

Trump has shone a spotlight on those challenges. Now he has to deliver results.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Michael R. Strain is a Bloomberg View columnist. He is director of economic policy studies and resident scholar at the American Enterprise Institute. He is the editor of “The U.S. Labor Market: Questions and Challenges for Public Policy” and the co-editor of “Economic Freedom and Human Flourishing: Perspectives from Political Philosophy.”

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

©2018 Bloomberg L.P.

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