Wealthy corporations may use trade courts to keep public health measures from cutting into their profits.
Trump’s Order to Bring Jobs Home from China is Toothless. But There Are Sensible Ways to Discourage Offshoring.
As his tariff war threatens to inflict unending pain on workers, farmers, and consumers, the U.S. president should consider solutions he could actually deliver.
Research & Commentary
August 23, 2019
The conditions that led President Trump’s trade war are rooted in the Clinton administration’s false assumptions about what China would do if it were allowed membership in the World Trade Organization. U.S. trade officials back then in the 1990s expected that entry into the global free trade club would lead China to reduce the role of the government in its economy.
But China did not abandon its interventionist development strategy, which includes heavy reliance on state-owned enterprises to advance national interests abroad. These enterprises receive subsidized loans from government-dominated financial enterprises, giving them a competitive advantage in international trade.
Paradoxically, this is simply a Chinese version of Trump’s “America First” policy rhetoric. But of course Trump doesn’t see it that way. And his efforts to pressure China into abandoning this strategy through trade tariffs is failing miserably.
The Chinese government has just announced new tariffs on $75 billion in U.S. goods and reinstated tariffs on American auto products. This is in retaliation for Trump’s latest tariffs on $300 billion in Chinese products, which are scheduled to go into effect on September 1.
American farmers and manufacturing workers are already feeling the strain of the trade war, and consumers are likely to feel the pain soon. According to JPMorgan researchers, U.S. families will be facing about $1,000 in additional costs from all tariffs on Chinese goods annually. Meanwhile, although U.S. direct investment in China has slowed, many big U.S. corporations are continuing to invest in this low-wage country, with CEOs and shareholders taking the bulk of profits.
With China refusing to back down, Trump’s combative approach risks perpetual conflict with China — not to mention a global economic downturn, as the trade war’s effects spread through the global economy.
Flailing in the face of China’s tariff escalation, Trump tweeted the following bizarre directive: “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”
“Hereby ordered” is not going to cut it. But there are sensible steps the U. S. government could legally take to address the legitimate concerns of U.S. workers who’ve either lost jobs due to offshoring or fear they may be next in line.
For example, it could change its tax laws so that a U.S. company could not continue to invest in a foreign country without paying U.S. taxes on an annual basis. This would encourage corporations to keep jobs in the United States. It would also help level the playing field between the large multinational corporations and U.S. companies that operate only domestically and have to pay corporate taxes upon being profitable to a state.
Or, one could put a surcharge on U.S. companies that move operations abroad, thus sharing the cost of devising a strategy for replacing the jobs that are lost.
The U.S. government could also use the power of the public purse by denying federal contracts to companies that outsource jobs overseas, as Senator Bernie Sanders recently proposed.
The Trump administration strategy of trying to force China to change its development strategy is not working and will not work in the future. We need a change in strategy with respect to China that focuses on what we can do within our own borders.