Trump’s Trade War Has Dire Consequences
Decisions based on false or misleading information can lead to wrong and harmful solutions. The constant harping on Chinese trade having “cost” America millions of jobs is false, especially given what we now know: that 85 percent of American job losses have resulted from technology, not trade.
This complicated issue is detailed in a Yale University School of Management report. However, this is not the end of the story.
Millions of simple manufacturing jobs have been replaced with service and advanced manufacturing jobs, where America still leads. In fact, American manufacturing’s major problem right now is a shortage of a million skilled workers. We need better worker re-training programs and a campaign to change attitudes towards the social standing of skilled workers in place of our current hyper-focus on college degrees.
Trump excluded service jobs from his trade statistics, yet they represent 90 percent of American employment and a $250 billion export surplus. Dismissed as “flipping burgers,” these jobs actually involve education, medicine, travel, transport, tourism, banking, computer programming, sales, and a vast array of tasks far preferable to manning old-fashioned factory production lines. A major reason the U.S. economy is still creating jobs, despite trade war-related losses in the farm sector, is because it’s so large and dynamic that it can weather the loss of a major sector’s prosperity—and because it’s still creating those service jobs we love to demean.
Steel and aluminum prices were supposed to be buoyed by Trump tariffs; instead they’ve declined because of a global drop in prices caused by the slowdown in trade. Trump’s tariffs have led to lower prices, less business, lower profits, and fewer jobs. Steel and aluminum fabricating industries have been hurt. Ford alone lost $1 billion from higher prices. Forbes reports that a Tax Foundation study estimates 16 lost jobs in fabricating for every new job the tariffs are expected to create. Protectionists argue that manufacturing jobs are important for national defense, but the trade war has sunk U.S. manufacturing to a 10-year low.
So-called National Conservatives promote protectionism, often for cultural rather than economic reasons, opposing immigrants and trade, which they see as harming American culture. But they are totally wrong to promote tariffs as the solution to lost jobs.
Just look at your iPhone as an example of how new technology displaces old jobs and creates new ones. Add up the dozens of industries that it’s helped change or make obsolete—from taxis to cameras, from film to alarm clocks. Trade and technology do cause job losses but they’ve also created millions more throughout human history.
Many in the anti-trade lobby are conservatives who yearn for a return to the 1950s, with local shops and local factories. Some argue that it’s China’s fault for supplying Amazon and Walmart with low-cost goods. But advanced computing and the internet have created an era of growth and change not seen since the 1890s. The creative destruction of capitalism has resulted in all sorts of economic dislocations, yes, but shuttered shops and lost jobs in Appalachia are not the fault of trade (especially with China). And the evidence is already in that raising tariffs won’t bring back those jobs. Domestic factory activity hit a 10-year low in September, while new jobs expanded at the slowest rate in 18 months. Farmers now depend upon Washington subsidies for 40 percent of their income because of lost trade with China and Europe.
American prosperity comes from our trade and from our dominance of many of the world’s industries. Standard and Poor’s 500 top companies post 44 percent of their sales from overseas. The idea that America could retreat from world trade and still remain prosperous is ridiculous. General Motors sells more cars in China than in the United States—4 million compared to 3 million here. Worldwide economic growth is slowing mainly because of our trade war, which has cost our industries far more than any gains from new tariffs.
Withdrawing from trade with China, as some protectionists advocate, would lower our standard of living and our security. America has flourished mostly from the international order and the rule of law, which Trump’s policies are destroying. His overnight decree violating World Trade Organization treaty agreements and cutting off certain nations from buying some of our exports has made America look unreliable. Already China has designed computer chips to replace some of those imported from the American company Qualcomm, which Trump embargoed. More of our export markets will contract as other nations begin to fear similar abrupt cancelations of U.S. trade contracts.
I predicted this crisis a year ago in an article that disproved many of the shibboleths bandied about in the campaign against trade.
Unless Trump pulls back from most of his demands upon China, the Midwestern farm states will continue to suffer because of lost foreign markets. That could send the whole American economy into recession just in time for next year’s election. Trump will risk losing a second term if the Democrats can field a moderate candidate to take him on.
And while it isn’t clear whether Trump’s trade policies are a direct cause of this, his approval ratings have plummeted in the key manufacturing states—Wisconsin, Pennsylvania, and Michigan—by 17 to 18 points.
Our great economic prosperity, engendered by the Trump tax cuts, regulatory reform, and deficit spending, is now being contravened by the trade war. Business investment is declining as companies grow uncertain over how new tariffs and consequent foreign retaliation will affect future supply chains and competition. The election is Trump’s to win—or lose—depending on what he does next.
John Utley is the publisher of The American Conservative.