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Permanent China Tariffs Could Be a Big Job Creator

It’s now been a year-and-a-half since President Donald Trump embarked on a series of tariff measures against China [1].

Critics have responded with strangely pro-China apologies for what they perceive as a disruption of global markets. But the tariffs are now accomplishing exactly what the president intended.

U.S. manufacturing employment has reached its highest levels since December 2008, according to federal data. And China’s economic growth just fell to its lowest level in at least 26 years.

The Trump administration’s tariffs were imposed precisely because China has long used predatory trade practices — including dumping, subsidies, and currency undervaluation — to gain a pricing advantage over U.S. producers. And the real-world result has been a quintupling of America’s China trade deficit since Beijing entered the World Trade Organization (WTO) in 2001. An $83 billion annual deficit then has since climbed to an unprecedented $419 billion.

All of this begs the question: What next?

Wall Street continues to argue that tariffs are an illegitimate form of taxation — even though such duties only apply to goods produced in China. And those espousing “free trade” with Beijing continue to turn a blind eye to China’s longstanding violations of its WTO obligations. But Trump administration officials have reached a point of exasperation. At the start of 2019, the president delayed new tariffs in order to arrange a compromise deal with China.

Related: Tariffs Are a Necessary Response to China’s Intransigence [1]

In May, however, Beijing suddenly rejected all negotiations — and jettisoned months of work assembled into a 150-page agreement.

As a result, half of the imports arriving from China are now subjected to U.S. tariffs. This has provided breathing room for struggling U.S. manufacturers across a wide array of industries — everything from steel and aluminum foundries to smaller machine ships and metalworking companies. And China has been forced to absorb any resulting and additional costs. Notably, inflation in the U.S. remains low, demonstrating that consumers aren’t seeing predicted price increases.

Because Beijing remains unwilling to meet the United States halfway on reciprocal trade, President Trump must now consider expanding his tariff measures, in my view. The Coalition for a Prosperous America (CPA) recently examined the consequences of a wider tariff scenario: a potential, 25 percent, across-the-board tariff on all Chinese imports.

Our research found that such a move would add up to 1.05 million U.S. jobs over five years, with GDP increasing by an additional $167 billion.

Much of that growth would come in the high-wage manufacturing sector.

Related: China Is a Bully and Must Be Treated Like One [2]

Under these conditions, portions of U.S. production would finally return from China. And segments of China’s industrial capacity would also shift to lower-cost third countries — helping to reduce prices for U.S. consumers. While China’s retaliation would have an impact, far greater domestic growth would overwhelm any negative consequences.

Particularly intriguing, however, would be the massive influx of additional funds for the U.S. Treasury. The revenue generated from expanded tariffs would total $547 billion over five years. If the Trump administration reinvested this money in much-needed infrastructure upgrades, the additional stimulus would help to boost GDP gains (as noted above) to $167 billion, and create up to 1 million new jobs over five years.

The only cautionary note is that the U.S. dollar has been rising in value for the past five years. Even if President Trump contemplates wider tariffs, infrastructure investment, and “buy America” preferences, he must pay attention to this currency misalignment.

An across-the-board tariff would help U.S. manufacturing production to return to the United States. Combining this with much-needed infrastructure repairs could yield significant economic growth. Roughly 100 million U.S. workers currently lack a college degree, and rely on hourly work in the retail and service sectors. Widespread growth in manufacturing — along with repairing America’s failing bridges, roads, and waterworks — could provide a greater path to middle class employment for millions of U.S. families.

The United States built its wealth and power on the strength of its production and innovation [3]. In fact, high tariffs, reinvestment of tariff revenue in the national economy, and an emphasis on domestic industry were the bedrock path pursued by George Washington and Alexander Hamilton. It was a course that built the largest economy in the world by 1880. In the contemporary era, however, it has been China that has followed such a sensible blueprint — Beijing coopting America’s formidable example in order to achieve its own success.

Related: Manufacturers See Two Years of Record-Breaking Optimism [3]

The only cautionary note is that the U.S. dollar has been rising in value for the past five years. Even if President Trump contemplates wider tariffs, infrastructure investment, and “buy America” preferences, he must pay attention to this currency misalignment — since it is now making U.S. exports less competitive globally.

Overall, though, President Trump’s tariffs are proving a necessary step to insulate the United States from China’s economic aggression.

More decoupling from China, despite what Wall Street says, is a sensible long-term path to creating good-paying jobs and restoring prosperity at home.

Michael Stumo is CEO of the Coalition for a Prosperous America (CPA), [4] a nonprofit organization working at the intersection of trade, jobs, tax and economic growth.