CPA Op-ed: Tariffs on Chinese goods should increase despite talks

January 14, 2019

Trump administration officials have just returned from Beijing after two days of talks meant to resolve China’s aggressive trade and economic cheating.

Op-ed by Michael Stumo, CEO of CPA, originally appeared on January 12, 2019 in the Hill

President Trump and Chinese President Xi Jinping agreed last month in Buenos Aires to pursue negotiations regarding forced technology transfer, intellectual property theft and cyber hacking.

It’s questionable, however, whether any short-term commitments will be credible or lead to real progress, since Beijing remains committed to a long-term strategy of eroding America’s economic, military and geopolitical strength.

The U.S. team included two knowledgeable veterans, Deputy U.S. Trade Representative Jeffrey Gerrish and Commerce Department Undersecretary Gilbert Kaplan. The two went to China with a strong hand, knowing that the tariffs imposed by President Trump in 2018 have simultaneously strengthened the U.S. economy and put pressure on China’s industrial standing.

It’s been more than six months since President Trump imposed Section 301 tariffs on $50 billion worth of Chinese goods. The tariffs followed a lengthy investigation into repeated cyber-espionage and hacking of U.S. firms by state-owned Chinese entities.

Rather than change course in the face of the tariffs, however, Beijing has doubled down on its predatory behavior — prompting further tariffs on an additional $200 billion of Chinese products. 

As the tariffs have continued, Beijing has continued to brazenly follow a long-term strategy of growing its economic and military strength through predatory economic practices targeting the U.S. consumer market.

The U.S.-China trade deficit is on track to increase by over 11 percent in 2018, despite aggressive tariff action. And in November, the Office of the U.S. Trade Representative issued an update on the tariffs that noted: “China has not fundamentally altered its unfair, unreasonable, and market-distorting practices that were the subject of the March 2018 report on our Section 301 investigation.”

Beijing’s intransigence continues a wider standoff between the two countries. But China stands to lose significantly since it relies heavily on exporting to the U.S. market. The tariffs imposed by President Trump have given U.S. companies sustained breathing room against what had been an ongoing slew of heavily subsidized imports.

Overall, the president’s action has given the U.S. economy a much-needed boost. U.S. manufacturing gained 32,000 jobs last month, capping a hefty jump of 284,000 new factory jobs in 2018.

During the first two years of the Trump administration, U.S. manufacturing job growth has expanded at nearly eight times the rate of 2015-2016. That has contributed to wider, inflation-adjusted GDP growth of 3.5 percent in the third quarter of 2018 —far better than many economists had predicted. 

Beijing hasn’t fared as well in comparison. China's stock market has fallen by roughly 25 percent in the past year, and a key manufacturing indicator showed slower manufacturing growth in October for the second straight month. In fact, the October level was the lowest for China since July 2016, with new export orders contracting for the fifth straight month.

It’s not surprising that Beijing has a lot to lose from a trade war with the United States. China has long engineered its economic and industrial rise on a state-directed program of seizing market share from U.S. competitors, by any means necessary.

Even after entering the World Trade Organization (WTO) in 2001, Beijing has never actually curtailed its massive subsidization of state-owned enterprises, currency management and dumping of product in the U.S. market at below cost of production.

It’s China’s cyber crimes and technology theft that remain particularly egregious, however. Beijing remains focused on capturing America’s high-tech prowess — all part of a pattern of deflecting short-term penalty in favor of long-term gain.

Beijing also has a long history of engaging in diplomatic talks, making grand promises and then not delivering. U.S. Trade Ambassador Robert Lighthizer is aware of these many previous failed negotiations and carries a folder of them to present to any administration officials who may not be aware of that history. 

All of this opportunism on the part of Beijing is merely prologue to the latest round of talks — and their inevitably inconclusive resolution.

That’s fine, though. The tariffs are working, and President Trump should keep taking a hard line against Beijing. In the long game, the administration’s trade team is very aware that the issues go beyond just China's retaliation against U.S. soybean farmers, for example, or the continuing theft of U.S. companies’ intellectual property.

What’s really at stake is determining who will lead the world in the decades to come. China plans for decades. America does not. The administration should resist pressure from Wall Street to make a deal with Beijing. That would be based on short-termism. Any quick deal could very well be judged, in retrospect, as a severe mistake.

Michael Stumo is CEO of the Coalition for a Prosperous America (CPA), an organization that advocates on behalf of U.S. farmers and manufacturers.

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  • Bruce Bishop
    There is no “long game” for us. The Chinese know that Trump will likely be replaced by another globalist in two, or six years, so they will wait him out. They will throw us a few bones, to make it look like they are being reasonable. Then, when Trump is gone, it will be back to business as usual.

    There are no politically feasible tariffs that can overcome China’s cost advantage. The “experts” told us that China’s cheap labor only amounts to 15% of product cost. Unfortunately, all manufacturing costs are ultimately “labor costs.” Material, overhead, energy, and transportation, are all made up of various wages and salaries. The Chinese costs are about one-tenth of our costs. Another huge advantage China has is “compliance.” Their cost of compliance with government regulations is zero, while ours is huge. They have no EPA, no OSHA, no EEOC, no FDA, no Sarbanes-Oxley, etc.

    Everything that can be manufactured, will eventually be manufactured in China. It is very difficult to find “Made in America” products. What you find on those web sites are extremely high end, or T-shirts made in tiny shops that couldn’t supply a single big-box chain.

    The only way to bring back our 8 million manufacturing jobs would be to implement some version of Warren Buffet’s “Balanced Trade” solution. As Buffet proposed, our government could mandate a “balance of trade” with China over a period of five years. Exporters of goods to China would get “credits,” which could then be sold to importers of Chinese goods. If you are interested, you can Google “Balanced Trade.” The Buffet article which appeared in Fortune in 2003, and again in 2016, is linked at the bottom.