Tuesday, January 26, 2016

The Best Way To Win Trade Deals With China

A major complaint in Trump's speeches is the massive $505 billion dollar trade deficit with China, and large deficits with other countries.  "We lose jobs," he says, "and they get cash."  Trump blames these deficits on incompetent negotiators.  Trump would use such shrewd businessmen as Carl Icahn to get better deals.

Why do U.S. firms manufacture overseas?  One reason is lower cost of production.  What can be done to encourage manufacturers to shift or keep their production in the U.S.?

First, reform the tax code.  Lower tax rates on all forms of business and individuals, eliminate taxation of dividends and capital gains and end worldwide taxation of income.

Second, eliminate unnecessary regulations that hamper investment and increase production costs in the U.S.

Third, continue to emphasize domestic energy production to maintain low prices that are an important input into U.S. manufacturing.

Fourth, reform medical insurance/health care to promote greater reliance on market forces.

These and other measures would dramatically improve the global competitiveness of American enterprises.

As to China, insist that it honors WTO and other bilateral and multilateral trade agreements.  If China violates these agreements to the detriment of American firms and individuals, then appropriate measures should be taken against China to level the playing field.  But removing the impediments to more efficient production in the U.S. would be the best way to start.  Getting a better deal with China without undertaking domestic economic reforms could turn out to be a pyrrhic victory.