By Peter Navarro | Los Angeles Times/TNS Forum
AS a policy advisor to the Donald Trump campaign, I frequently get asked whether he is serious about imposing a 45-percent tariff on Chinese imports.
Skeptics cry “protectionism” and warn of a trade war. Let’s set the record straight. Trump will impose countervailing tariffs not just on China, but also on any American trade partner that cheats on its trade deals using practices, such as currency manipulation and illegal export subsidies. Such tariffs are not protectionist, but rather, defensive—and consistent with actions taken by American presidents from George Washington to Ronald Reagan.
Indeed, one of the first bills Washington signed was a tariff, which Alexander Hamilton justified as a necessary defense against a mercantilist Europe. Is a 45-percent tariff too high? When Japan flooded global markets with underpriced computer chips in the late 1980s, Reagan slapped a 100-percent tariff on semiconductors, plus high-end computers and televisions. The total tariffs were based on the economic injury suffered by the US semiconductor industry as result of Japan’s cheating on a trade agreement. This is the kind of flexible case-by-case approach that a Trump White House, Treasury Department, Department of Commerce and US trade representative would use.
Still, Trump’s suggestion of a 45-percent tariff on Chinese imports would, by my calculations, be an appropriate level. More than 10 years ago I began analyzing exactly how China’s state-run industries significantly undercut foreign manufacturers and found that lower labor costs accounted for only 39 percent of China’s price advantage. Five other unfair trade practices—the aforementioned illegal export subsidies and currency manipulation, along with intellectual-property theft and lax worker safety and environmental regulations—are the bigger story. For example, China’s central bank keeps the yuan undervalued, thereby overstimulating the nation’s exports while discouraging imports from the US. Such blatant currency manipulation contributes significantly to a $365-billion trade deficit last year with China that would not exist in a freely floating exchange rate world.
Similarly, when China simply steals the intellectual property behind US technology—and avoids incurring substantial research and development costs —it gains a huge advantage in key industries, such as autos, biotechnology and pharmaceuticals. Likewise, when Chinese companies evade the environmental and worker-safety costs imposed on American industry, made-in-China stuff can get even cheaper. When I added up the effects of such practices in China in 2006, they accounted for 43.7 percent of the artificially low price of Chinese manufactured goods—almost exactly the amount of Trump’s proposed tariffs. In the decade since my study was conducted, China’s cheating has only worsened and become more institutionalized. For example, the bipartisan Commission on the Theft of American Intellectual Property in 2013 estimated that the US loses more than $300 billion a year to intellectual-property theft and blames China for 50 percent to 80 percent of the problem. The Peterson Institute for International Economics in 2012 attributed “half or more of excess US unemployment” to currency manipulation and identified China as “by far, the largest” currency manipulator.
Image credits: Jimbo Albano
1 comment
good for Asean including the philippines