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Foreign Policy

While Lobbing Rhetorical Bombs at China, Trump Risks Friendly Fire

Mar 01 , 2017
  • Harry Krejsa

    Research Associate, Center for a New American Security

During the campaign, Donald Trump’s foreign policy platform was decidedly lacking in detail. A notable exception, however, was the purportedly unquestionable villainy of China. China was a jobs thief, Mr. Trump claimed, manipulating its currency to prop up its exports and exploiting bilateral trade arrangements so as to tilt the scales against American competitors. In his trademark restrained and contemplative style, Mr. Trump accused previous American leaders of allowing Beijing to “rape” the United States and carry out “the greatest theft in the history of the world.” Many countries were to blame for the decline of working-class America, Mr. Trump claimed, but China was the chief wrongdoer among them.

Except that China no longer seems to exist, and the chief threat to American blue-collar jobs comes from within our borders — not abroad. President Trump, in clinging to this narrative, promises to fight a war long past with weapons that are likely to hurt his allies as much as his supposed enemy.

While there was a time that some factory-floor jobs were indeed offshored to China (likely the late 90s to early 2000s), most economists agree that this is no longer the case. Over the long term, automation is, and will likely continue to be, the true threat to blue-collar American workers. Chinese factory-floor wages have risen quickly in recent years, and they are now the highest in Asia, so much so that Chinese companies are now seeking cheaper labor in other parts of the continent. China’s currency, while likely undervalued for a time, has stabilized to the point that their central bank is working to strengthen it.

The US-Chinese economic relationship does need to be reformed, but in the advanced-manufacturing and high-skilled sectors, where China may threaten to outcompete us in the economy of the future. President Trump is targeting the wrong problems; China the factory-stealer is a useful antagonist — but no longer a relevant one.

Indeed, the Trump administration’s conviction that China is to blame for working class struggles is likely to backfire on the very populations the president claims he wants to protect. President Trump has proposed a 45% tariff of China and a 20% tariff on Mexico (his second-most-threatening villain), yet seemingly without regard to their second-order effects. Such aggressive new trade policies would surely bring retaliation in kind, and the Americans it would hit first and hit hardest would be many blue-collar workers. U.S. farmers depend on exports for 20% of their income, and agricultural sales to China alone have doubled in just the last 10 years. At the same time that the president threatens to play chicken with their livelihoods, American farmers have no margin for error. National farm income fell 15% last year to its lowest level since the Great Recession.

Factory workers have it no better. Modern manufacturing of the kind most represented in the United States — that is, more of the advanced variety — depends on supply chains of thousands of companies spread out across the globe. These intricate industrial networks would be thrown into disarray by massive punitive tariffs of the kind floated by the Trump administration. The aerospace industry is an illustrative example; Boeing’s commercial airliner business is at the center of a domestic supply chain of 13,000 companies employing and 1.5 million jobs. But modern passenger jets are made up of six million distinct components, and depend not only on those 13,000 American companies, but many more beyond our borders. If those imported components become more expensive because of an ill-advised trade war, Boeing’s low-margin business will suffer against Airbus, and American jobs will likely be lost.

Indeed, the future of economic competition between the United States and China will not be fought over factory floors and farmland, but over software and advanced technology. In these sectors, not only would such blunt tariff instruments as those proposed by the Trump administration be unhelpful, but they would actively hurt American competitiveness. Protecting U.S. intellectual property and broadening market access for American firms should be the administration’s priority. Chinese cyberattacks are likely responsible for the theft of billions of dollars in trade secrets and advanced research, and over the long term the U.S. economy needs both greater deterrence and investments in defensive capabilities to stop the bleeding. In the short term, American companies are significantly harmed by being shut out of burgeoning Chinese industries to which Chinese companies have free access in the United States. The American Chamber of Commerce finds that 80% of respondents operating in China feel less welcome than they had in the past, and the overwhelming majority of them have little or no confidence that market access will improve soon.

The Trump administration could attack these issues head-on. While proper strategic deterrence will require careful calibration and planning, the government could work to develop incentives for more private-sector investment in widespread cybersecurity foundations. The administration could also trade in its tariff cudgel for a market access scalpel, restricting Chinese firms’ activities in the United States similarly to how American firms are restricted in China. With the right strategies, the United States will not only be ready to compete with China in job creation and innovation for the 21st century, but avoid the worst collateral damage of an indiscriminate trade war.

Unfortunately, talk of such a trade war is already causing that collateral damage. Many small businesses are already postponing plans to expand into China thanks to this policy uncertainty. Should fear of retaliatory tariffs continue, companies wanting to expand will opt to license their ideas and technologies to foreign firms instead of trying to produce them here and sell them to China directly. The result will be no new American jobs — just dollars and renminbi moving between corporate bank accounts. Hardly a vision of America being made great again.

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