Donald Trump is strongly supported by working-class voters since he promised to get back their jobs, and on Tuesday, he was taken seriously by Republican primary voters. So the problem relating to his trade policy to China needs to be explored further.
“We don’t win anymore,” “They are taking our jobs,” and “They don’t play fair.” These are among the sentences that Trump spoke in public about his thoughts of trading with China. And his way to solve this problem is to impose huge tariffs on imports from China, which he thinks could help restore all the manufacturing jobs lost to China. If “president” Trump really puts his plans to effect, this would hurt both China and the U.S. economies.
Firstly, his tariffs plan certainly breaks the WTO rules and U.S. promise to maintain a reasonable tariff rates. So China would have the right to act and impose high tariffs on imports from the U.S to compensate the damage. And the WTO would require U.S to maintain its promised tariff level and allow China to protect its right. In fact, China is U.S. third largest export market. Suppose U.S. exports to China about $115 billion in total last year, the increased tariff imposed by China might close its export market, which is a disaster for American exporters. And for those people who work in the export industries, such as soybeans, copper, coal and so on would lose their job because of the lost market.
Secondly, even if the tariff was increased, U.S. importers wouldn’t stop exporting goods from China since capital costs are still higher in the U.S. than in China. Tariffs are just like indirect consumption taxes and they would definitely increase the price of the exports. So it is the American consumers that will be hurt by the increased tariffs, especially those poor people. Since most of the exports are foods, clothing and other life essentials, poor and mid-class people have to pay more for those goods. And eventually maybe the only person that could afford the expensive goods is Donald Trump himself.
Thirdly, his plan won’t take back the jobs he thought lost to China. A large part of the exports from China is industrial supplies and materials or non-automotive capital goods. So many firms will have to pay more for those goods, which increases the costs. And this would lead to the layoff of employees since the firms have to cut costs to maintain operation. Furthermore, the increased tariffs might increase the competitiveness of domestic producers but in the long run imports would shift from China to other foreign countries like Vietnam, India, or Mexico. Recall what happened when United States imposed tariffs on Chinese tires. Chinese exporters suffered a lot while U.S. tire manufacturers didn’t improve at all.
To China, the increased tariffs is also a huge loss. The exporting companies will face higher costs and as a result, employees might be fired and companies might go bankruptcy. And if it takes action against the rising tariffs, it might also face higher import prices. Clearly we can see that Trump’s tariffs will hurt more than good for both sides.
In fact, his idea that China is dominating the United States is ridiculous. Surely China is growing rapidly and experienced impressive GDP growth. But this happens in every highly developing countries. The U.S. and other governments have long accused China of artificially keeping the value of its currency low, making its exports cheap and attractive and are worried about this. But United States is in fact much great wealthier and more productive, which China can’t compete with, at least up to now. So why not give up those plans that would hurt both sides but try to build a more stable and healthier trading relationship with each other?