Late-night news comic John Oliver recently gave a 20-minute talk about President Donald Trump’s use of tariffs. As always, he was very funny, but he made a few mistakes in his analysis of trade.
The Coalition for a Prosperous America (CPA) would like to help provide a better understanding of the issue. To start with, Oliver said that Americans will pay for the tariffs imposed by the president.
That’s not actually true. In fact, it’s basic economics that every tax is paid partly by the producer and partly by the consumer. When there is an alternative product in the market, such as one made by an American producer, then the foreign producer will cut his price because he wants to maintain a presence in the U.S. market. So both sides end up splitting the cost.
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That’s exactly what’s happening with Huawei right now in solar inverters. The Chinese manufacturer would like to dominate the U.S. market for inverters. Huawei has close links to Chinese military intelligence and has received billions of dollars in Chinese government subsidies.
As a result, Huawei has been banned by the Pentagon from selling internet equipment in the U.S. A couple of years ago, its engineers were caught stealing test equipment from T-Mobile’s lab in Seattle.
So now Huawei sells smartphones in Best Buy. The Chinese firm recently claimed its new Nova 3i takes the best selfies you can take with a smartphone. The only problem was the selfies weren’t actually taken with a Huawei Nova 3i.
They were taken with a $5,000 Canon DSLR camera. So now, Huawei is thinking of pulling its government-subsidized inverters out of the U.S. market. That would leave the market to two U.S. manufacturers, SolarEdge and Enphase.
Oliver also said that tariffs would cause job losses in the future, and he quoted some horrendously large figures. There’s an old saying in the economics profession: “Economists don’t make forecasts because they’re good at it, they make forecasts because they get paid to do it.”
In fact, the CPA has done the only accounting of actual committed job gains and losses from the Trump tariffs so far. What we’ve found is that the tariffs have created 11,000 U.S. jobs and eliminated just 514. That’s a 20 to 1 ratio in favor of jobs created by tariffs.
Job creation makes sense because tariffs stimulate domestic production. That’s what they’re designed to do. It’s really not hard to understand that.
Oliver tried fact-checking the president, too, saying he was dreaming when he quoted a figure of $800 billion for America’s trade deficit in 2017. In fact, Trump was referring to the U.S. goods deficit, which was $807 billion last year.
“Job creation makes sense because tariffs stimulate domestic production. That’s what they’re designed to do. It’s really not hard to understand that.”
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Like Trump, many Americans are concerned with goods trade because more jobs are created by making goods than by producing services. In fact, economists estimate that each $1 billion added to our trade deficit means an additional 6,000 jobs lost. So the $552 billion overall trade deficit in goods and services that Oliver identified accounts for about 3.3 million American jobs lost.
Oliver is right that this isn’t just about manufacturing. America’s farmers have been drawn into the picture because China has chosen to retaliate against our agricultural sector. But he’s a bit late in caring about America’s farmers. Agricultural prices have been falling for years, and American farm incomes are down by more than 50 percent in the past five years.
It appears that Oliver bought the free traders’ propaganda hook, line and sinker when he said that everybody wins from trade. That’s just not true. If it was, both the U.S. and U.K. would have voted differently in 2016.
Countries running trade surpluses are experiencing stronger economic growth, more manufacturing, a movement towards greater equality of incomes, and political harmony. But in nations running trade deficits, we see widespread job loss and deindustrialization.
It’s fantastic that Oliver’s great-great-grandfather was the court chaplain to Queen Victoria. He should be proud! But he should remember that it was under Her Majesty Queen Victoria that the British government first took action to help workers by establishing limits on working hours and restricting the work of children working in factories.
Today, America and Britain haven’t lost jobs because of automation; that’s a minor factor. We’ve lost jobs because China and other Asian countries are employing people at pennies an hour, including children, in unacceptable working conditions.
The iPhone, for example, was made not by a robot, but by thousands of workers at a Foxconn plant in China, who are literally required to sign a pledge that they won’t kill themselves in the face of cruel working conditions and dormitory living, not too far from slave labor.
On the subject of China, Oliver was absolutely right to point out that China cheats by undervaluing its currency, restricting imports, and unfairly subsidizing exports. And that poses the question of which side Oliver is on.
The U.S. has run a trade deficit for 42 straight years. The U.K. has run a trade deficit for 20 years. Every economics textbook says that can’t happen. Meanwhile, China has run a surplus for 25 years, built up its army and navy and laughed at us behind our backs.
It’s time to stand up for American workers, farmers, and the corporations dedicated to providing Americans long-term employment with decent pay and conditions. It’s time to fix U.S. trade and rebuild our economy.
Jeff Ferry is research director at the Coalition for a Prosperous America (CPA).
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