China Trade War Didn’t Boost U.S. Manufacturing Might
Factory production peaked in 2018, data show; Trump advisers say tariff campaign will yield benefits over time
WASHINGTON : President Trump’s trade war against China didn’t achieve the central objective of reversing a U.S. decline in manufacturing, economic data show, despite tariffs on hundreds of billions of dollars of Chinese goods to discourage imports.
The tariffs did succeed in reducing the trade deficit with China in 2019, but the overall U.S. trade imbalance was bigger than ever that year and has continued climbing, soaring to a record $84 billion in August as U.S. importers shifted to cheaper sources of goods from Vietnam, Mexico and other countries. The trade deficit with China also has risen amid the pandemic, and is back to where it was at the start of the Trump administration.
Another goal—reshoring of U.S. factory production—hasn’t happened either. Job growth in manufacturing started to slow in July 2018, and manufacturing production peaked in December 2018.
Mr. Trump’s trade advisers nonetheless say the tariffs succeeded in forcing China to agree to a phase one trade deal in January, in which Beijing agreed to buy more U.S. goods, enforce intellectual property protections, remove regulatory barriers to agricultural trade and financial services and to not manipulate its currency.
Tariffs “are having the effect of bringing manufacturing jobs back to the U.S.,” U.S. Trade Representative Robert Lighthizer said in an interview, citing statistics that show a net gain of 400,000 U.S. manufacturing jobs from November 2016 until March 2020, when the pandemic forced widespread factory closures.
However, about 75% of the increase in manufacturing jobs occurred before the first tranche of tariffs took effect against China in July 2018, when annual growth in manufacturing jobs peaked and then began to decline. By early 2020, even before the pandemic reached the U.S., manufacturing job growth had stalled out, and factories shed workers in four of the six months through March.
An industry-by-industry analysis by the Federal Reserve showed that tariffs did help boost employment by 0.3%, in industries exposed to trade with China, by giving protection to some domestic industries to cheaper Chinese imports.
But these gains were more than offset by higher costs of importing Chinese parts, which cut manufacturing employment by 1.1%. Retaliatory tariffs imposed by China against U.S. exports, the analysis found, reduced U.S. factory jobs by 0.7%.
Mr. Trump is one of a long line of U.S. presidents to use tariffs to protect favored industries. President Obama put steep tariffs on Chinese tires, President George W. Bush imposed tariffs on steel and President Reagan hit Japanese televisions and computers.
But Mr. Trump’s enormous increase in tariffs on Chinese goods represented a sharp departure in post-World War II economic history. Since the war, the U.S. has led round after round of global trade talks aimed at reducing tariffs. No longer.
“This is the biggest use of tariffs since the Smoot-Hawley tariffs” during the Great Depression, said Chad Bown, a trade expert at the Peterson Institute for International Economics. “The economic impact is going to take years to play out.”
Mr. Trump has called himself a “tariff man” and said businesses that complain about the impact of tariffs should simply build factories in the U.S.
“I happen to be a tariff person because I’m a smart person, OK?” Mr. Trump said in an interview with The Wall Street Journal in November 2018 as the trade war intensified. “We have been ripped off so badly by people coming in and stealing our wealth.”
The tariff strategy, however, played out differently for manufacturers depending on their individual circumstances. That is shown by the experience of two Midwestern manufacturers, Atlas Tool Works Inc. and Hemlock Semiconductor Operations.
Illinois-based Atlas said sales of its brackets, gears and conveyor belts used in manufacturing rose 18% in the year after Mr. Trump placed tariffs on similar parts from China. But Hemlock, a Michigan company that makes polysilicon used in computer chips and solar cells, is still struggling.
The phase one trade deal signed by Washington and Beijing in January specified that China would buy more U.S. solar-grade polysilicon, Hemlock’s main product. But China never lifted its tariffs on polysilicon—just as the U.S. kept tariffs on most Chinese imports—and Hemlock didn’t register any gains.
“We’ve reached out to Chinese companies, ‘Are you interested in buying polysilicon?’” said Phil Dembowski, Hemlock’s chief commercial officer. “But they all tell us the same thing—no mechanism to import it without paying duties. They’d like to, but they can’t afford that tariff.”
Atlas, by comparison, was able to benefit from the tariffs because it shuns Chinese suppliers—a point of pride for the family-owned business founded in 1918.
The company says it was forced to close a lucrative business supplying telecom-gear makers in the early 2000s because of Chinese competition. Atlas refocused on fabrication equipment for the defense and health-care industries, but that eventually came under assault from cut-rate Chinese competition too, according to owner Zach Mottl.
When Mr. Trump approved tariffs in 2018, sales boomed. Atlas had no Chinese suppliers, so its costs remained stable. The company, which had about 100 employees before tariffs, added about two dozen new positions.
“We saw the uptick right away when the tariffs hit,” Mr. Mottl said.Read More..
Source : wsj
