There’s Still Hope on China Trade, But Trump Is Selling It All Wrong

(Bloomberg Opinion) -- Even the most committed free-traders have to admit that tariffs and the threat of tariffs can prod other countries to make needed reforms. That outcome is still possible in the American trade war with China, and it’s the one to root for.

But our thinking about this conflict suffers from misconceptions that bias us toward President Donald Trump’s tariff-centered strategy.

I’m not just talking about Trump’s apparent beliefs that Chinese companies bear the full cost of our tariffs on their exports and that our trade deficit represents a loss of wealth to China. Even analysts who don’t make these simple errors fall for other ones.

They say, for example, that the bilateral trade deficit is an advantage in the negotiations. Because we import more from China than China imports from us, the argument goes, China has more to lose. What’s wrong with this notion, leaving aside the fact that China can harm us in more ways than by restricting our exports, is that it’s based on a mistaken, mercantilist view of trade. It ignores the costs that countries incur when they place tariffs on imports. The more we import, the more restricting imports costs our consumers, and the more it raises supply costs for companies.

We are also supposed to get leverage from the fact that American companies can move parts of their supply chains from China to elsewhere in Asia, as the president has suggested. Thus my Bloomberg Opinion colleague Tyler Cowen plays down the costs that tariffs impose on American companies: “Within a few years, a country such as Vietnam will provide the same products, perhaps at cheaper prices, because Vietnam has lower wages. So the costs to U.S. consumers are temporary, but the lost business in China will be permanent.” This is a one-sided accounting that exaggerates our advantage. If China is going to lose this business anyway, it means that the harms our tariffs inflict on it are temporary too.

A common refrain from supporters of the tariffs is that nobody before Trump had ever tried to take on Chinese economic abuses. The implication is that whatever the risks of Trump’s approach, the only alternative to it is to let those abuses continue or worsen. In fact, before Trump a third alternative was being pursued with bipartisan support: encircling China with a trade bloc built to reflect more of our economic views than China’s. In suggesting that companies should relocate production from China to Vietnam, Trump is recapitulating the logic of the strategy he abandoned at the start of his term when he abandoned the Trans-Pacific Partnership. The TPP would have enabled companies to make that decision rather than just exhort them to do it.

A further misconception is that Trump’s tariffs will benefit blue-collar workers in the industrial heartland. That perception may aid Trump politically. The economics are less likely to hold up. If the tariffs do not result in significant Chinese concessions, then some American manufacturing workers will receive protection from imports. But others will see their companies shrink as a result of tariffs on inputs and retaliatory Chinese tariffs.

If, on the other hand, the tariffs yield a breakthrough deal, it’s not going to bring back manufacturing jobs. As Trump’s tweet tacitly conceded, if those jobs leave China, they’re going elsewhere in Asia. Stronger protection for American intellectual property, meanwhile, will generate more jobs in California than in Ohio. For that matter, it will generate more jobs in China, by making it a more attractive place to invest.

As I said, I’m hoping for that breakthrough deal. But the president has taken a needlessly risky and confused strategy. It takes a lot of mythologizing to make it look better than it is.

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

Ramesh Ponnuru is a Bloomberg Opinion columnist. He is a senior editor at National Review, visiting fellow at the American Enterprise Institute and contributor to CBS News.

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