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.


Unknown said...

The China issue is not purely economic. Or, another way to say it is: economic relations with China have a broad and non-simple strategic dimension. Take TPP: proponents see it as very critical for linking smaller countries, that want to avoid over-dependence on China, with the US, and for establishing US favored norms of behavior, as alternative to China's own regional economic agreements. Opponents of TPP, like Trump, focus only on job losses in the USA. That will get him votes in the election, but if he is elected and continues to oppose TPP, America's influence in Asia-Pacific will decline more than otherwise. Trump appears to be entirely unaware of this dimension of international relations.

Unknown said...

P.S. American trade policy has basically been to buy the peace. The inevitable deficits are funded by the unique role of the US$, which is tolerated because there has been general (if not local) peace. A prime Chinese goal is to see the US$'s role reduced, so the USA cannot be so active abroad. The deficits and job losses were excused by promise of innovation, brining new and better jobs to workers laid off from lost jobs. But that hasn't worked, because the same narrowly focused economic rationalists who promote outsourcing also oppose support for education. So we have a large class of despairing jobless workers, Trump's constituency.