America’s trade deficit with China cost the United States 3.4 million jobs between 2001 and 2017, with the losses hitting all 50 states and every congressional district, according to a new study released by the left-leaning Economic Policy Institute (EPI).
The report notes that the trade deficit has grown by an average of almost 10 percent a year since China entered the World Trade Organization (WTO) in 2001, ballooning to $375.2 billion last year.
Robert Scott, the think tank’s director of trade manufacturing research, told reporters on a conference call that “every corner of America has a stake” in turning around the trade deficit. He noted that some 90,000 factories have closed since 1997.
“The job loss to China is not all inevitable,” said Scott, who co-wrote the study. “Policy matters. Exchange rates and misalignment are well-correlated with trade imbalances.”
Scott Paul, president of the Alliance for American Manufacturing, told reporters on the conference call that while the unemployment rate might be low, so is wage growth in the manufacturing sector.
“More importantly, the human toll of job loss to China is evident to anyone who has traveled through communities hollowed out by factory closures due to import competition from China or shifts of production overseas,” he said. “The despair in some of these communities is very apparent.”
The study estimates that trade policies have reduced annual wages for 100 million workers without college degrees by an average of $2,000 per worker. Most of those lost wages went to corporations and college-educated workers at the top of the income scale, according to the report.
Chris Garcia, a former deputy director of the Department of Commerce under President Donald Trump, told LifeZette that the EPI study makes a compelling case for tough action against China.
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“This is a groundbreaking analysis,” he said. “Frankly, it is irrefutable and undeniable that since China joined the WTO in 2001, when they promised to adhere to the rules of the global trading system, they did not.”
Kevin Kearns, president of the U.S Business and Industry Council, said the impact on American manufacturers has been profound.
“These are job losses that they can measure using their methodology … But there’s all sorts of other jobs that we can’t see because of IP [intellectual property] theft.”
“The experience, especially of small and midsize manufacturers, is that they had to meet the China price — both with competition directly with consumer goods and with competition in another way that the Walmarts of the world … would try to force their prices down and threaten to go to China if they didn’t,” he told LifeZette.
Kearns, whose organization lobbies on behalf of family-owned and closely held American manufacturing firms, said the full impact of China goes even beyond what EPI documented.
“These are job losses that they can measure using their methodology … But there’s all sorts of other jobs that we can’t see because of IP [intellectual property] theft,” he said.
Garcia credited his old boss for taking aggressive action to confront China by imposing tariffs on imports — particularly at a time that the U.S. economy is dynamic enough to withstand retaliatory action.
“What President Trump has done is implement a brilliant strategy that, number one, puts the United States in a position of strength,” he said.
Scott offered much more tepid support for Trump’s tariff approach.
“The tariffs have succeeded in putting trade with China on the agenda,” he said. “They have focused attention, in particular, on problems in trade in high-tech products.”
The study documents that even high-end manufacturing has not been immune to pressure from China.
“For many years, we thought that the United States should have a comparative advantage in those products since we are the leader in high-tech production,” Scott said.
But even though the U.S. runs a trade surplus with every other country in those kinds of products, the deficit with China produces a net shortfall in those sectors.
Scott said Trump’s first round of tariffs, on steel and aluminum imports, were effective because metals trade was particularly imbalanced.
But Scott said he worries that subsequent tariffs represent “tactics without a strategy.”
“Part of the problem with the tariff strategy that’s been adopted so far is that it actually is not aggressive enough.”
Scott said that even if the United States were to impose tariffs on all Chinese-made goods and all automobile parts globally, it still would hit just a third of the $2.5 trillion worth of imports.
“Part of the problem with the tariff strategy that’s been adopted so far is that it actually is not aggressive enough,” he said.
A better approach, Scott said, would be to devalue the U.S. dollar, either by purchasing foreign currencies to bid up their value or to impose a tax on dollar purchases. He said the United States devalued the dollar twice before, under Richard Nixon in the 1970s and in 1985, when officials in Ronald Reagan’s administration negotiated a deal with several other countries.
The 1985 agreement dramatically drove down the trade deficit by making U.S. exports cheaper and imports more expensive, Scott said.
Such a strategy is not without risk, Scott acknowledged. It could lead to higher interest rates, which would both make U.S. debt more expensive and serve as a drag on economic growth. But he argued that it would stimulate domestic manufacturing, canceling out the negative impacts.
Scott estimated that devaluing the dollar by 30 percent would create 1 million to 3 million additional jobs over the three- to five-year period.
One of the biggest dangers is that China will dig in and continue imposing its own pain-causing tariffs in hopes of getting more accommodating policies from a future president.
“China’s main strategy is to wait this out, I think,” said Garcia, the former Trump administration official.
Kearns, of the U.S. Business and Industry Council, said business likely will wait before making long-term decisions. He said it took several years before the 1985 currency devaluation had its intended effect.
Kearns said China has risks of its own from a protracted trade war. He said the county is overleveraged and dependent on rapid economic growth fueled by exports.
“They’re trying to figure out how to manage the United States,” he said.
Garcia said tariffs will have an “exponentially negative effect” on China if it tries to hold out for a change in U.S. policy.
“And we have other options for our supply chains, whereas China does not have other options to replace the robust American consumer base,” he said.