Trade 101: How China Exploits the US Economy
This article was produced by the Independent Media Institute.
The trade relationship between China and America has become destructive and exploitive. China’s deliberate trade violations are draining America’s strength. Beijing is to America what Delilah was to Samson.
Top U.S. trade officials are in China this week in high-stakes negotiations to curb China’s illegal trade practices and restore American vigor. They are scheduled to meet Friday with Chinese President Xi Jinping. They’re talking tough, which is appropriate since no previous agreement and no previous penalties have even dinged China’s free-market-defying trade regime. But then, President Trump let slip earlier this week that he would consider postponing a tariff increase scheduled for March 1 if no deal is reached. Delay means nothing but additional strength shorn from America.
The white-shoe bankers and lawyers on Wall Street don’t see it, and few politicians in Washington, D.C., care. But voters in America’s industrial heartland suffered the consequences of China’s massive and persistent trade violations. Good, family-supporting manufacturing jobs disappeared. For those lucky enough to retain jobs, pay has stagnated for more than two decades. Once-thriving communities decayed as China drained American wealth.
Trade is supposed to be a symbiotic relationship, both sides benefiting. But trade with China is a parasitic relationship. America’s ever-rising trade deficit with China is the clear evidence of that. Despite tariffs on aluminum and steel and additional levies on $250 billion in Chinese exports to the United States, America’s trade deficit with China spiked again last year.
The U.S. figures aren’t available yet, but China says the trade deficit in 2018 was $323 billion, as Chinese exports to the U.S. increased 11.8 percent over the 2017 figure. Meanwhile, U.S. exports to China inched up a paltry 0.7 percent. If China’s figure is correct, it’s a 10-year high. The monthly deficits in October and November set all-time records.
What this means is that exploited workers in China are employed making the cameras, clothes, televisions and trinkets that Americans buy. And they’re doing it in Chinese factories that pollute with abandon. It means Americans are not manufacturing those things; Americans no longer have those jobs.
The ever-growing trade deficit since China joined the World Trade Organization (WTO) in 2001 cost American workers 3.4 million jobs, three-quarters of them in manufacturing. Directly impacted workers lost income amounting to $37 billion a year between 2001 and 2011.
Those losses are caused not just by China’s poverty wages and permission to pollute. It’s much more. China’s central and regional governments subsidize industries in ways that violate WTO regulations requiring free, open and competitive markets. These governmental officials provide free land, “loans” that don’t have to be repaid, free and underpriced raw materials and many other financial perks to industry in China.
This market intervention promotes expansion of industries even when there is no demand for the products. Aluminum is a good example. Chinese government subsidies enabled China to become the world’s largest producer between 2000 and 2011, even though aluminum smelting requires massive amounts of electricity, and that utility is relatively expensive in China. Then, with the benefit of subsidies, China doubled its aluminum output between 2011 and 2015.
China dumped the excess metal on the international market, depressing prices and bankrupting smelters in the United States. As China ramped up, 18 of 23 U.S. smelters closed and 13,000 good, family-supporting jobs disappeared.
U.S. steel producers suffered similar losses as China subsidized more and more steelmaking capacity. Between 2000 and 2016, the United States lost 48,000 steel jobs.
In addition, China manipulates its currency, devaluing it so that its exports are artificially cheap and American imports are falsely expensive. China forces U.S. corporations that want to operate there to transfer valuable technological information. And China engages in cyber theft of U.S. corporate trade secrets. Firms viewed as high-tech like Moody’s Analytics and Siemens were victims of Chinese cyber theft, but so were two U.S. steel corporations and a major aluminum company.
Industrial development is a lot cheaper when the technology is stolen.
The United States has responded over time by placing tariffs on hundreds of imported products, including 161 types of illegally dumped foreign steel. But China subverts these penalties by transshipping—that is, sending the product to another country, claiming it was made there, then shipping it to the United States duty-free—and by switching production to non-tariffed steel products.
Finally, last spring, the Trump administration placed blanket tariffs on all imported steel and aluminum to preserve the U.S. industries that are crucial for national security. In July, it placed 25 percent tariffs on $50 billion in Chinese exports to the United States, and in September, it imposed 10 percent tariffs on $200 billion in Chinese exports to the United States. The penalties on the $200 billion were to rise to 25 percent on January 1, but the administration delayed that date to March 1 as negotiations with China for resolution of the trade disputes continued.
All of these tariffs, however, have been sabotaged. The U.S. Commerce Department granted massive exemptions to importers of Chinese aluminum and steel. Now, a whopping 86 percent of Chinese aluminum exports to the United States and 40 percent of Chinese steel exports to the United States are excluded from the tariffs, rendering them feeble as penalties.
Also last year, China’s currency value, which is controlled by the government, declined by 10 percent against the dollar. That offset all of the tariffs the administration imposed on China and fueled the trade deficit records. President Trump swore repeatedly on the campaign trail that he would designate China a currency manipulator on day one in office. The administration has done nothing, however.
When the WTO agreed to admit China to the association of nations, the Asian giant agreed to abide by free market trade principles, operate under a rules-based trade regime and open its massive market to foreign businesses. Nearly 20 years later, it still has not honored those pledges.
The U.S. administration is right in its current negotiations to demand enforcement mechanisms because China’s promises have proven worthless. U.S. Trade Representative Robert Lighthizer is right to stand tough in negotiations, saying earlier this month:
“Until China transforms its approach to the economy and trade, the United States will take all appropriate actions to ensure that the costs of China’s non-market economic system are borne by China, not by the United States.”
The United States could use a partner to gain maximum strength in this effort. Canada is the obvious choice.
Just like the United States, Canada has been weakened by China’s trade cheating. The two countries share many trade problems, including the loss of manufacturing jobs to Mexico. GM, for example, just announced it would cut manufacturing and 14,800 jobs in the United States and Canada, but none in Mexico or China.
To get Canada’s cooperation, the United States would have to exempt it from the steel and aluminum tariffs. Canada, a close, free-market trading partner to the United States, never should have been subjected to those tariffs anyway.
The United States must end the destructive trade relationship it has with China. Canada, America’s closest ally, could help.