Trump Lost his Trade War
At least, that’s the conclusion of an interesting piece in Bloomberg News.
The deficit did fall year-on-year in 2019, as U.S. companies switched to imports from countries like Vietnam, but it remained higher than the $254 billion gap in 2016. That was partly because Beijing’s imposition of retaliatory tariffs on about $110 billion in goods reduced its imports of American products, and these only started recovering in the last few months of 2020.
As part of the phase-one trade deal signed a year ago, Beijing made an ambitious vow to import $172 billion worth of U.S. goods in specific categories in 2020, but through the end of November it had bought just 51% of that goal. The slump in energy prices amid the pandemic and the problems with Boeing Co.’s planes played a part in that failure.
The persistent deficit demonstrated how reliant companies are on China’s vast manufacturing capacity, which was highlighted again by the pandemic. China was the only country capable of increasing output on a big enough scale to meet surging demand for goods such as work-from-home computers and medical equipment.
There are a number of other reasons offered in the article. One is that the costs incurred by Trump’s tariffs simply aren’t high enough to convince U.S. investors and producers to relocate from China.
More than three quarters of 200-plus U.S. manufacturers in and around Shanghai surveyed in September said they didn’t intend to move production out of China. U.S. companies regularly cite the rapid growth of China’s consumer market combined with its strong manufacturing capabilities as reasons for expanding there. “No matter how high the Trump administration raised any tariffs, it was going to be very difficult to dissuade US companies from investing,” said Ker Gibbs, president of the American Chamber of Commerce in Shanghai.
It isn’t just that U.S. consumers bears most the costs of the tariffs; supply-chain interdependence means higher prices for U.S. companies, which in turn has made American exports less competitive.
Trump repeatedly claimed that China was paying for the tariffs. Economists who crunched the numbers were surprised to find that Chinese exporters generally didn’t lower prices to keep their goods competitive after the tariffs were imposed. That meant U.S. duties were mostly paid by its own companies and consumers.
The tariffs led to an income loss for U.S. consumers of about $16.8 billion annually in 2018, according to a National Bureau of Economic Research paper.
Another own goal: Tariffs on imports from China tended to reduce U.S. exports. That was because globalized supply chains mean manufacturing is shared between countries, and the U.S. raised the costs of its own goods by levying duties on imports of Chinese components.
The whole thing is worth reading, although I don’t know how easy it will be to make it through Bloomberg‘s aggressive paywall.
The article underscores yet another foreign-policy mess that the Biden administration will have to deal with. Biden faces some difficult decisions about whether to continue the status quo, escalate the economic conflict, or capitulate during a time of increasing tensions between Washington and Beijing. And thanks to Trump, he will be starting from a position of comparative weakness.