The Dallas Morning News
Trade war won’t help U.S. workers
A U.S. vs. China mentality ignores mutual economic benefits,
Ahead of last week’s meeting with China’s President Xi Jinping, President Donald Trump’s recent tweets that “we can no longer have massive trade deficits and jobs losses” have made it clear that fixing “unfair” trade with China is central to his plans to reinvigorate the U.S. economy.
His narrative is simple: The large and growing trade deficit with China harms U.S. workers, and the only way to protect American jobs is for the U.S. to threaten a trade war with China by taxing goods and services imported from China through a tariff or border adjustment tax.
However, focusing solely on the trade balance is misleading and ignores the significant benefits for U.S. job creation resulting from U.S.-China trade in North Texas. A trade war with China would hurt Dallas consumers and workers, not solve the issue of lost jobs.
In a new report on the methodology of calculating the U.S.-China trade deficit, my colleagues and I argue that both countries vastly overestimate the size of the real trade deficit, presenting a distorted picture of the current relationship. According to the Commerce Department, the U.S. had a $367 billion trade deficit with China in 2015, a number that has been growing in recent years.
Our analysis, however, finds that the real trade deficit is likely closer to $132 billion, only slightly more than a third of the U.S. figure.
The production of an Apple iPhone is a great example of why focusing on the official trade balance figures is incredibly misleading. While designed in California, iPhones are made up of components sourced from around the globe, ultimately assembled and exported from China.
Despite the pricey export values of iPhones, China only provides the lowvalue assembly, which amounts to about $20 per phone. Compared with the average export price of $500, this amounts to a value-added ratio of 4 percent.
And yet the official U.S. statistics report each iPhone as representing $500 worth of imports from China to the U.S.
American manufacturers simply don’t make low-cost commodities anymore, and imports can include expensive products like airplanes, autos and medical devices designed in the U.S. and assembled in China with components and parts sourced around the world. Almost a fifth of China’s exports head to the United States.
If taxes are imposed on Chinese exports to the U.S., the same products could just be imported from other countries.
A trade war would not help American workers. U.S. exports of goods and services to China are found to have generated directly and indirectly more than 1.07 million jobs (650,000 jobs from exports of goods alone) in the U.S. in 2015. The U.S. Chamber of Commerce finds that imports from China support as many as 2.7 million American jobs.
Trade in services between the U.S. and China has been growing by leaps and bounds, with a large surplus in favor of the U.S.
This is particularly true in the Dallas area, which received more than $7.4 billion in investment from 2000 to 2015. Rhodium Group estimates that the 159 Chinese establishments in Texas employ 3,600 local workers. The Chinese telecom giant Huawei employs more than 300 workers, and ZTE is another hightech employer keeping Richardson an important destination for foreign electronics companies.
Instead of higher taxes or tariffs that will make foreign products more expensive, the new administration should focus on keeping U.S. workers competitive in the higher-value goods and services, investing in technology, education, retraining and infrastructure. The Trump White House should come up with an economic plan that will alleviate the loss of jobs, whether from trade or from innovation.
In the face of these real economic threats for the Texan worker, focusing on the bilateral trade balance is a distraction.