The great Chinese mercantilism Myth: my reply to Adams Nager.

Author:Katz, Richard
 
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In this year, of all years, getting it wrong on whether international trade is destroying millions of American jobs is not just a mistake, it's dangerous. Republican nominee Donald Trump and Democratic runner-up Bernie Sanders have convinced tens of millions of voters that the Japanese, Chinese, Mexicans, and others have "stolen" their jobs or--in Sanders' less inflammatory version--that American multinationals have shipped their jobs overseas. Tough trade actions, they claim, will bring those jobs back. Trump promises to pursue the most self-destructive trade war since the Smoot-Hawley tariff of 1930. Offering steps like a 45 percent tariff on imports from China as the core of his jobs strategy, Trump thundered on June 28: "America has lost nearly one-third of its manufacturing jobs since 1997--even as the country has increased its population by fifty million people. At the center of this catastrophe are two trade deals pushed by Bill and Hillary Clinton. First, the North American Free Trade Agreement, or NAFTA. Second, China's entry into the World Trade Organization."

Now, if it really were true that China's trade practices, fair or foul, have caused the lion's share of the decline in American factory jobs, economists would have no choice but to tell the truth, even if politicians like Trump misuse their findings. However, if it is not true, then economists such as Fred Bergsten and David Autor are inadvertently giving ammunition to a politician whose protectionism they oppose and whose actions, according to Moody's, would provoke a recession costing Americans 3.5 million jobs. Trump's sky-high tariffs would not only impose a huge tax on American consumers, thus causing a slump in consumer demand, they'd so disrupt the delicate web of global supply chains as to put out of business innumerable firms in the United States and elsewhere. This is truly a case where the cure is far worse than the alleged disease.

Make no mistake about Trump's capacity for wreaking havoc. Trump promised to use Section 301 of U.S. trade law. This enables any president who doesn't care about the rules of the World Trade Organization, or foreign retaliation, to unilaterally impose punitive tariffs whenever he deems a country's practices "unjustifiable" and/or "unreasonable" and claims that they "burden U.S. commerce."

DID CHINA CAUSE THE DECLINE IN AMERICAN FACTORY JOBS?

In TIE'S Spring 2016 issue, Adams Nager of the Information Technology and Innovation Foundation criticized my view that rising U.S. productivity is responsible for the decline in U.S. manufacturing jobs; instead, he insists that it was imports from China that caused the majority of that job loss. I do not disagree with Nager's view that many of China's trade practices are unfair and mercantilist, even illegal, and that the United States needs to act. Nor do I disagree that, for a long time, China had a policy of keeping its currency undervalued. Moreover, as I made clear in my articles in TIE and Foreign Affairs, even though America as a whole benefits from the expansion of global interdependence, some American workers are hurt by it and the United States needs to use some of the benefits of trade to...

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