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Damooei: U.S. should not be fighting a trade war

By   /   Friday, December 21st, 2018  /   Comments Off on Damooei: U.S. should not be fighting a trade war

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Jamshid Damooei

By Jamshid Damooei

It is time to accept that simply declaring a trade war and claiming victory in advance does not justify the battle or make success real. Our trade war with China is one of these cases. It appears that in the eyes of our government, China and all our trading partners are potentially enemies if there is a deficit anywhere in our balance of trade with them. It is easy to turn workers against outside enemies instead of looking into what we do internally. Research indicates that our country and much of the industrialized world outside North America lose more jobs to technological change than international trade.

Some describe the current escalation of the trade war with China, Canada, Mexico, Japan and others as a return of the Cold War. Proponents of this idea have forgotten or never understood the logic and the time of the Cold War. It was a period of isolation and animosity between two camps with differing views as to how their countries’ economies should be run. One group followed Marxist-Leninist principles, and the other pursued capitalism. Economic and trade relationships were very limited between them. In remarkable contrast, our current economic and trade environment is built on strong interdependence and cooperation. It’s true that all follow their own interests, but they understand the common bond and the interrelationship of their economies.

According to the U.S. Census Bureau, exports to China increased 87 percent from 2008 to 2017 while those to the rest of the world increased only 16.6 percent. U.S. exports to China in 2017 were about $130 billion, which ranks third behind neighboring NAFTA members Canada and Mexico. Aerospace products and parts, oilseeds and grains, motor vehicles, semiconductors and components, and oil and gas are the major U.S. exports. Farm products count for a sizable amount. Last year, soybean exporters rushed to ship before the imposition of tariffs, which resulted in improved export performance. A decline will result when the Chinese take countervailing measures.

The idea that imports are bad and exports are good comes from a misunderstanding of international trade. Out of $500 billion plus in imports from China in 2017, 46 percent were capital goods, over 45 percent were consumer goods and around 7 percent were intermediate products. So, a considerable proportion of imports are consumer goods — less expensive alternatives for the items consumers need. This means buying Chinese products helps American consumers, possibly more than the meager tax cuts many low-income Americans received last year. With regard to the capital and intermediate goods, putting tariffs on them and raising their prices means increasing production costs for U.S. companies. This affects their ability to compete and can result in the loss of American jobs.

The General Motors layoffs come amid trade wars among the U.S., China and Europe that likely will lead to higher prices for vehicles imported and exported from the U.S. CEO Mary Barra said that GM faces challenges from tariffs, but she did not directly link the layoffs to them. Indeed, the company said the workforce reduction is designed to open up opportunities for research and development. This means, once again, that workers are losing jobs to innovation and new technology. However, tariffs imposed on the steel and aluminum used by automakers, and tariffs erected against China and those China has retaliated against played a role in GM’s decision. China is a crucial market for automakers. GM has said the tariffs cost it $1 billion. That is in relation to $6 billion in costs GM is trying to save by restructuring.

Our government’s policy of fighting China and the rest of the world is not going to protect American jobs. It’s going to kill jobs. The U.S. economy is interrelated to the rest of the world. No matter what some may say for purely political reasons related to their personal gains, the facts will prevail, and, in the process, all will lose much. Our government policy is a recipe for a lose-lose outcome, and we do not have to accept it or support it.

• Jamshid Damooei is the director of the undergraduate economics program and the Center for Economics of Social Issues in California Lutheran University’s School of Management.

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