For “Our” China Trade Emergency…

By Do-Hee Jeong, BASC Research Assistant

Many politicians made the China debate a central component of their campaign platforms for the recent midterm elections, and Ohio Democratic Senator Sherrod Brown was no exception to this trend. Brown and others assert that since normalizing trade relations with China in 2000, the US bilateral trade deficit has increased dramatically (by 170 percent to be exact) because of China’s illegal subsidies and currency manipulation (for more information on China’s currency controversy, refer to this recent blog post by Professors Vinod Aggarwal and Simon Evenett). Senator Brown criticizes proponents of this bilateral relationship who emphasize the fact that exports to China have also increased as inaccurately telling only one side of the story. In his own words, it “is like reporting just one team’s score in baseball: the Cubs scoring five runs sounds good, until you hear that the Reds tallied 12.”

However, in his recent New York Times op-ed, Senator Brown also seems to fall victim to his own criticism, because isn’t trade a two-way relationship? Rather than focusing on just China’s actions that undermine free-market competition, why not focus on the US’ failed attempts to make its own industries competitive globally? The labor cost argument stretches only so far, as the US could have found other comparative advantages. Instead of developing industries that could be more competitive, the US government continues to bail out its uncompetitive automobile industry. As the US complains about its trade deficit, the rest of the world is already moving far ahead in innovative and sustainable technological developments, as Ren Yi Hooi describes here.

Even if the US had not normalized trade with China a decade ago, it is questionable whether or not the US would have this trade deficit today without better developing its comparative advantages. Other countries with cheap labor sources would probably have taken China’s place. Similarly, even if Section 301–which allows Washington to respond with aggressive trade measures, including tariffs if investigations find that China’s support for clean-energy exports violates international trade rules–is implemented, there are still other countries that will probably replace China and continue to prolong the US trade deficit. The US would then still be pointing the finger at others for its unemployment and deficit, rallying its people to support protectionist measures to improve the trade deficit. The senator claims that the 1980s and 90s restrictive measures against Japanese and Korean subsidies and trade barriers led to more balanced trade relationships. But ironically, the US government still places blame on Japanese car companies for the demise of the American automobile industry and still brings up the asymmetrical automobile trade with Korea as a hindrance to the KORUS FTA. If trade restrictions are so effective, why do we still have similar problems with trade deficit in sectors that have been protected?

I am not saying that the invisible hand should have been or be the sole solution, since every economic action is complicated by political ramifications. Furthermore, I am not arguing that the Chinese have not implemented unfair trade policies. But, I wanted to draw attention to the other aspect of the bilateral trade relationship that seems to be ignored in recent politically-charged criticism against Chinese trade policies. Instead of using China as a scapegoat to its domestic problems, the US should focus more on better developing its competitive sectors not only to assuage internal tensions but to provide a long-term solution to establish its competitiveness since trade restrictions, such as the Section 301 proposal provides only a temporary solution. This dramatic shift will not be easy and without public protest, but it seems to be a necessary sacrifice in order to secure America’s competitiveness in the long-run. Perhaps, these trade restrictions are necessary to alleviate immediate trade deficit and unemployment. But, the government should take further steps beyond this temporary solution to continue developing its successful industries to establish long-term trade competitiveness.

I agree with Senator Brown that “‘made in America’… is more than an empty slogan.” It should definitely be more than empty political rhetoric and instrument to evoke patriotism amongst the American public. However, promoting “made in America” does not necessarily mean standing up for ALL American manufactures, but rather for those that can be made competitive.

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