At the Milken Conference this week, Secretary of Commerce Wilbur Ross asked: Who thinks China’s large trade surplus has hurt their growth? Not one hand went up. Why then, he suggested, isn’t our large trade deficit a negative for growth?
He has a point. Critics claim the Trump administration’s aggressive trade policies are creating damaging uncertainty, and may prove too costly and too risky. Some argue that huge trade deficits are okay.
Outsized trade deficits are not okay. Even Jason Furman, formerly chairman of President Obama’s Council of Economic Advisors, admits in an especially convoluted piece, that the United States has to borrow from foreign nations to finance our current account deficit and that “America would be making even more money if it didn’t owe foreigners so much debt.”
But is reducing the gap between our exports and imports worth the uncertainty that trade tensions bring? Some say the trade talks already are slowing the economy’s acceleration, and that it may get worse. Investors, managers, consumers, farmers, planners — they all hate uncertainty.
Not President Trump; he loves uncertainty. It works for him. It is uncertainty about how far he is willing to go, militarily and diplomatically, that has moved the needle on North Korea. It is uncertainty about his approach to the Iran deal and to trade that has French President Emmanuel Macron and Germany’s Angela Merkel scurrying to Washington, hopeful of winning concessions from the White House.
It keeps friends and foes off guard, giving the president, more often than not, the advantage of surprise.
What is his end game? About that there is no uncertainty. President Trump wants to protect and create American jobs. That is the ambition that underscores his trade negotiations, tax policy and push to eliminate costly and unnecessary regulations. It is perhaps the sole constant in the ever-whirling White House, and it is one that belatedly has begun to attract supporters, even from the other side of the aisle.
Chuck Schumer, also speaking recently at the Milken Conference, applauded the president’s confrontation with China. The Senate minority leader and other Democrats may be late to the table, but they recognize (correctly) that the voters they lost in 2016 view China as a hostile nation that has stolen American jobs. Those blue-collar workers who defected to vote for Trump are also suspicious of trade deals such as NAFTA and the TPP.
Though President Trump’s objectives are clear, markets and business leaders are anxious about the current trade negotiations. The White House is not playing checkers; it is playing three-dimensional chess. It wants, for example, to convince our European Union allies to join us in confronting China’s dumping of steel and aluminum. At the same time, they would like those same allies to join in punishing Iran for its mischief-making in the Middle East.
Germany and France, among others, oppose reimposing sanctions on Tehran, in part because their companies stand to make billions of dollars in Iran. France’s Total, for example, entered into a $5 billion joint venture to develop Iran’s South Pars gas field soon after the nuclear deal was struck. Germany’s Volkswagen and France’s Renault have both committed to returning to Iran, with many other firms following suit.
So, it’s complicated. It is also complicated that the United States continues to need China’s help in brokering a denuclearization on the Korean Peninsula, even as we confront Beijing over its multiple trade infractions.
What will Trump’s trade team be able to extract from China? Beijing likely will offer some tariff reductions and greater opportunities for U.S. firms to compete freely in its markets.
China may also quietly ratchet down their widespread thefts of intellectual property. President Xi Jinping presented himself at Davos last year as a champion of globalization. He appears concerned about his and China’s public image; he will not want the United States to parade endless accusations of cyber stealing and corporate espionage across the world stage.
On the other hand, President Xi has recently accumulated enormous power; he cannot lose face by seeming to give in to U.S. bullying. Nor will he give up his newly crafted economic plan and long-range ambitions to dominate the industries of the future.
Trump critics portray the trade spat with China as lose-lose. They think Beijing will retaliate against U.S. interests, possibly damaging American farmers. China may indeed strike back; but it is important to remember who has more to lose in this dispute. It is not the United States. It is the country fueling job growth through a giant trade surplus.
It is also important to remember that China’s ambitions have only grown. They are rapidly moving up the value chain, manufacturing airplanes instead of T-shirts, after helping themselves to our intellectual property and know-how. Beijing is now making demands on tech firms — such as requiring Apple to store data in China on servers owned by Chinese firms — similar to the rules that compromised U.S. manufacturers that operated in the country. If we don’t want U.S. technology firms to go the way of U.S. manufacturing, we need to stand up to China, now.
Secretary Ross pointed out that Trump’s tougher stance on trade already is paying dividends. Earlier this year, the White House imposed tariffs on solar panels, which had been requested by Suniva and SolarWorld, and on washing machines. Despite predictions that the measures would stunt the growth of solar, Ross noted that, soon after, solar manufacturers such as China’s JinkSolar announced plans to open facilities in the United States. Similarly, First Solar committed to spending $400 million in Ohio on a new manufacturing plant.
Those developments didn’t get much play in the media.
Fighting for fair trade and open markets carries some risk, and might in the short term deliver some pain. But, as Secretary Ross pointed out, our trading partners and rivals need to know we’re serious. The end goal, he argued, is entirely worth accepting some uncertainty. He is correct.
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