Study: Trump trade war could cost US households $11,000 each

5 months ago Comments Off on Study: Trump trade war could cost US households $11,000 each

Donald Trump is absolutely right that the U.S. has a big trade deficit with China. Last year it was $365 billion—a far cry from his half-trillion-dollar claim—but still a cool billion dollars a day.

He blames this trade gap on clever Chinese officials who are smarter than us and have been manipulating their currency—the yuan  —to keep it artificially low, thus making exports cheaper for us to buy. He says they’re sucking the “blood out of the United States”—and we’re suckers for letting them get away with it. Trump specifically points to China’s 2001 entry into the World Trade Organization as the point when the trade rout began, noting that in the ensuing 15 years “Americans have witnessed the closure of more than 50,000 factories and the loss of tens of millions of jobs.” The soon-to-be Republican nominee sums all this up quite succinctly: “We’re losing.”

These claims have been debated by economists six ways from Sunday. Some say there’s validity to Trump’s argument. Others cite other reasons, like the global economic crash, the effects of which are still being felt, and big productivity gains which mean fewer workers are needed to manufacture things. Politifact does a good job of exploring both sides of this important debate here.

Meantime, I’ll challenge Trump’s China/WTO/2001 premise myself. Four years before China joined, a report by the New York Fed pointed out that “the United States has gone from enjoying a small trade surplus with China to grappling with an enormous deficit,” adding that “the trade imbalance can be expected to widen in the near term.” The report cited Chinese tariffs, import quotas, and bureaucratic shenanigans as hindering American exporters. And, rather presciently, it expressed concern about Chinese theft of intellectual property, which then as now is an inhibitor to U.S. exports of high-tech, value-added goods and services.

It’s also worth pointing out that in relative terms the trade deficit is no worse off than it was pre-2001; in fact, it’s actually better. Last year, the sum of goods and services we bought from China was 4.1 times more than they bought from us ($481 billion vs. $116 billion). Yet in 2000—the year before China joined the WTO, we bought 6.2 times as much ($100 billion) than they bought from us ($16.1 billion). In absolute terms, the numbers have ballooned, because the economies of both nations have grown so much. But in relative terms, the gap has narrowed.

Also, why does Trump keep saying Beijing is deliberately keeping its currency low? Is he not aware that China’s Central Bank is actually spending big (the equivalent of $90 billion in January alone) to boost the yuan?

Nobody disputes Trump’s claim that manufacturing jobs have vanished since 2001. But they’ve been disappearing for generations. In 1950, one in four nonfarm jobs in the U.S. were in manufacturing. It’s now about 8.5%. The shift is similar to farming itself: in 1900, 41% of American jobs were farm jobs, by 2000, it was 2%. There are larger issues at play here that predate the WTO, that predate another of his (and Bernie Sanders’) bugaboos—NAFTA—by decades. 

So for reasons like these, I’ll have to disagree with Trump’s assertions. And since he has gotten the diagnosis wrong, his chosen remedy is wrong too.

He wants big tariffs on China—along with Japan and Mexico—which he says will correct the trade imbalances we have will all three nations. He also thinks this will keep U.S. manufacturers—like the well-publicized departure of a Carrier air conditioning plant in Indianapolis and an Oreo factory in Chicago—from leaving. It’s an issue that justifiably terrifies workers in vulnerable industries—and helps explain why Trump has cruised to the GOP nomination.

What Trump’s supporters don’t seem to get is that the tariffs he proposes—35% to 45%—could cost the average American household $11,000 over five years, according to a recent study.

“Who the hell cares if there’s a trade war?” Trump scoffed at a New Jersey event this month. I suppose when you’re super wealthy like he is, it doesn’t matter if the price of a TV or pair of sneakers or even a car goes up 35% to 45%. But when you’re just about anyone else, it matters. A lot.

On top of that, the report by the nonpartisan National Foundation for American Policy adds that if those countries retaliated against us (we export stuff to them too, you know) it would destroy lots of American jobs. “Who the hell cares if there’s a trade war?” I’ll bet the one in six American workers whose jobs are linked to trade do. Even American companies that don’t export would be hurt by Trump’s tariffs: their reliance on cheap, imported raw materials would drive up costs—which would just be passed on to us. Importers, exporters, manufacturers and consumers, Trump’s trade agenda could hurt everyone.

Just how many jobs could be lost in a Trump-inspired trade war? Moody’s Analytics studied that problem for the Washington Post. It concluded that Trump is right: big tariffs on China and Mexico would push both countries into a recession. But because we live in a global economy, we’d be dragged into a recession as well. “Up to 4 million American workers would lose their jobs,” the Post notes, while “another 3 million jobs would not be created that otherwise would have been, had the country not fallen into a trade-induced downturn.” Seven million jobs. Gone.

Aside from the enormous economic damage that higher tariffs would inflict upon Americans, Trump continues to see tariffs as a stand-alone issue. He thinks it’s perfectly acceptable to start an economic war with China, for example, while not considering whether this might effect other policy goals we have with Beijing, such as halting its military expansion in the South China Sea, curbing cyber attacks, or getting its cooperation against Iran (Beijing is one of the so-called P5+1 countries that signed last summer’s nuclear deal with Tehran.) These kinds of giant problems don’t exist in isolation. Like pieces of a puzzle, they all connect to form a big picture. Trump has never shown an inclination or ability to connect the dots on such conflicting priorities—it is one of his biggest, and least discussed, weaknesses.

Trump (like Sanders) deserves credit for shining a spotlight on the plight of American workers who are falling behind. But his ideas—at least on trade—are wrong.

Study: Trump trade war could cost US households $11,000 each