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In Focus: Reforming the Imbalanced Trade Relationship with China

Unfair trade has cost America millions of jobs, and the Phase 1 deal with China won’t help.

Q1 2020
The stock market has been hitting record highs and unemployment numbers are low, but working families aren’t enjoying this economy. Cost of living is up. Well-paying jobs that don’t require a four-year degree are scarce. The future of work looks incredibly uncertain. There are lots of explanations for how we got here. But let’s focus on one President Trump talks about a lot: China.

American workers have been hammered for nearly two decades by Chinese imports. Economists call it “the China shock.” In fact, the country lost 3.7 million jobs to the Chinese trade deficit between 2001 and 2018. It was felt everywhere — in every state and every congressional district in the country.

President Trump boasts of a “blue-collar boom,” but the numbers show only 26,000 factory jobs added nationally over the past year, and 12,000 shed last month alone. Manufacturing as a percentage of GDP is 11 percent, a post-World War II low. Meanwhile, the non-petroleum trade deficit in goods reached a high in 2019: $839.2 billion.

There are complex economic factors for the years-long malaise in U.S. manufacturing, but China plays a big part in them. Two decades ago, we were promised slightly cheaper stuff at stores like Walmart and a partner in the Chinese government that would follow the rules if we expanded trade. Instead, many Americans have been left economically insecure because imports crowded out chunks of our manufacturing base. Our goods trade deficit with China went from $83 billion in 2001, to $103 billion in 2002, to $124 billion in 2003, and reached nearly $420 billion in 2018.

China must address the fundamental issues that give it an unfair trade advantage, especially the enormous subsidies it gives its industries. Import competition pushed down wages for America’s factory workers. And studies have documented that the toll of this import shock begins with unemployment and often ends with “deaths of despair.”

The Bush and Obama administrations relied on dialogue with China to turn this relationship around. They failed. President Trump promised a different approach, and while he has delivered that by going it alone and raising tariffs, he hasn’t laid out a clear endgame.

Many Democratic presidential candidates criticize Trump for his China trade policy, particularly the tariffs, but the tariffs aren’t the problem. Although we should work with allies to make these negotiations more successful, our nation should also use its economic leverage — including tariffs — to defend our workers and industries.

The problem is the result of Trump’s “trade war.” In January, at the White House, the President claimed victory in the China “Phase 1” deal, surrounded by Wall Street executives clearly relieved that an uneasy truce had been reached. But this agreement doesn’t require China to address the fundamental issues that give it an unfair trade advantage — especially the enormous subsidies it gives its industries.

Those fundamentals remain, and that means the forgotten men and women Trump often talks about were forgotten again in that deal. The President says that won’t happen in “Phase 2.” The president we elect in November — Trump or otherwise — must see that it doesn’t.

It’s important that we make things in this country. Being able to continue doing so means we must reform our deeply unbalanced trade relationship with China. And real reform means fixing the fundamentals.

Exclusive Research