China trade war did not boost US manufacturing

WASHINGTON – President Trump’s trade war against China did not achieve the central objective of reversing US declines in manufacturing, economic data show, despite tariffs on Chinese goods worth hundreds of billions of dollars to discourage imports.

The tariffs were successful in reducing the trade deficit with China in 2019, but the overall US trade imbalance was larger than that year and continued to climb, rising to a record $ 84 billion in August as US importers sold cheap goods from Vietnam Transferred to sources. , Mexico and other countries. The trade deficit with China has also increased amid the epidemic, and is back at the beginning of the Trump administration.

Another goal — the resurgence of American factory production — has not happened either. Manufacturing growth started slowing in July 2018 and manufacturing production reached a peak in December 2018.

Trade advisers to Mr. Trump say the tariff was successful in agreeing to China for a one-stage trade deal in January in which Beijing would buy more American goods, enforce intellectual property protection, regulatory barriers to agricultural trade and financial services Do not remove and manipulate your posture.

They also say tariffs – which remain at around $ 370 billion annually in Chinese goods – will over time force China to end unfair practices and help rebuild the US manufacturing base.

US Trade Representative Robert Lighthizer said in an interview, “showing the net profit of 400,000 US manufacturing jobs from March 2016 to 2020, when the epidemic forced widespread, tariff” effects of bringing manufacturing jobs back to the US Are putting The factory closes.

However, a nearly 75% increase in manufacturing jobs preceded the first tranche of tariffs against China in July 2018, when annual growth in manufacturing jobs peaked and then began to decline. In early 2020, even before the epidemic reached the US, manufacturing development work stalled, and factories shed workers in four out of six months through March.

An industry-by-industry analysis by the Federal Reserve showed that the tariffs helped boost employment by up to 0.3% in industries exposed to trade with China, with some domestic industries looking to cheapen Chinese imports Patronized for

But these gains were more than offset by the high cost of imports of Chinese parts, which cut manufacturing employment by 1.1%. Retaliatory tariffs levied by China against US exports, the analysis found, reduced US factory jobs by 0.7%.

Mr. Trump is one of a long line to use tariffs to protect the US President’s favorite industries. President Obama imposed heavy tariffs on Chinese tires, President George W. Bush imposed tariffs on steel and President Reagan struck Japanese televisions and computers.

But Mr. Trump’s steep increase in duties on Chinese goods represented a sharp departure in post-World War II economic history. Since the war, the US has led round after round of global trade negotiations aimed at reducing tariffs. not anymore.

“This is the largest use of the tariff after the Smoot-Hawley tariff during the Great Depression,” said trade expert Chad Bown of the Peterson Institute for International Economics. “The economic impact is going to take many years to play out.”

Mr. Trump has called himself a “tariff man” and said that businesses complaining about the impact of tariffs should simply build factories in the US

“I can be a tariff person because I’m a smart person, okay?” Mr. Trump said in an interview with The Wall Street Journal in November 2018 that the trade war had intensified. “We are so badly trapped that people come and steal our money.”

The tariff strategy, however, is played differently for manufacturers based on different circumstances. This is shown by the experience of two Midwestern manufacturers, Atlas Tool Works Inc. and Hemlock Semiconductor Operations.

Illinois-based Atlas said sales of brackets, gears and conveyor belts used in manufacturing rose 18% in the year after Mr. Trump imposed tariffs on equal parts from China. But Hemlock, a Michigan company that manufactures polysilicon used in computer chips and solar cells, is still struggling.

A phase one trade deal signed by Washington and Beijing in January specified that China would buy a more American solar-grade polysilicon, the main product of hemlock. But China never raised its tariffs on polysilicon — just as the US kept tariffs on most Chinese imports — and Hemlock did not record its gains.

Hemlock Semiconductor CEO Mark Bassett initially supported President Trump’s efforts to help US solar companies, but later realized deep changes were needed.


Elaine Cromie for The Wall Street Journal

“We’ve reached out to Chinese companies, ‘Are you interested in buying polysilicon?” Said Hemlock’s Chief Commercial Officer Phil Demboski. “But they all tell us the same thing – there is no mechanism to import it without paying the duty. They want to, but they cannot afford that fee.

Atlas, by comparison, was able to benefit from the tariffs because it was a matter of Chinese suppliers — pride for the family-owned business established in 1918.

The company says that in the early 2000s Chinese competition was forced to close a lucrative business that created telecom-gear. Atlas relied on construction equipment for the defense and healthcare industries, but ultimately was also attacked by cut-rate Chinese competition, according to owner Jacch Moti.

When Mr. Trump approved the tariff in 2018, sales boomed. Atlas had no Chinese supplier, so its cost remained stable. The company, with about 100 employees, added about two dozen new positions before the tariffs.

“We saw that just when the tariff hit, we saw a boom.”

But for companies including Hemlock, the tariffs backfired. Instead of pressuring Beijing to open the market, China responded to counter-tariffs that made hemlock products more expensive there. And American companies buying parts from China suddenly faced high costs.

American trade negotiators recognized that many American companies, such as Hemlock, relied on Chinese supply chains, and demanded China to withdraw its industrial subsidies. But the US-China trade agreement, signed on 15 January, failed to achieve the target, which had been closed for future negotiations that have yet to materialize.

Mr. Trump and his rival, former Vice President Joe Biden, taunted whether the president’s trade and tariff policies have brought factory jobs back. “He gave up on manufacturing,” said the president to Messrs. Biden and Obama said in the first presidential debate.

Mr Biden was similarly dismissive of Trump’s record during the session, saying that “construction went into the hole” even before the epidemic.

Nevertheless, Mr. Biden’s top advisors are not committed to returning Trump tariffs on China. Instead, they say the Vice President will consult with colleagues on what to do about the levy. “We will be one of the tools to consider in an affiliate approach,” said Senior Biden adviser Jake Sullivan.

Derek Scissor, a resident scholar at the conservative American Enterprise Institute, initially supported the Trump administration’s approach to China, but now says the effort largely failed to achieve its objectives.

“There are reasons for imposing tariffs, there may be reasons in case of bilateral deficit, but it is not a large payment of manufacturing jobs,” Mr. Scissor said.

Despite a limited US-China trade deal, Americans can get low-priced toys this Christmas. The WSJ visited the Chinese city which churns on Frozen and Peppa Pig gadgets to understand the impact of tariff threats. (Published 12/16/2019) Photo: AP Photo / Ma’s.

Mark Bassett, CEO of Hemlock, was excited to see the Trump administration’s efforts to level the playing field in the solar industry. But he is confident that more fundamental changes were needed for his company and others that compete against Chinese rivals subsidized by Beijing.

Mr. Bassett compared the arcade game’s tariffs to Target, saying, “You need to take a look at things a little more holistically rather than a weird method.”

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In 2010, Chinese companies manufacturing solar panels, like Hemlock, bought a US $ 1 billion polysilicon. Anticipating continued strong sales to China, Hemlock spent more than $ 1 billion to build a new factory in Clarksville, completed in 2012.

But China had its own plans. Solar was specifically identified as a strategic industry for Chinese dominance in “Made in China 2025”, a national plan to dominate the country’s high-tech manufacturing. That plan included making solar-grade polysilicon, replacing China as a competitor to hemlock rather than the customer.

Solar-grade polysilicon exports to China had shrunk to $ 107 million by 2018. The plant never operated in Clarksville, and closed in 2014.

“This is the classic Chinese industrial story,” Mr. Bassett said. “Constant subsidies, no need to give returns on investment, no enforcement of environmental or safety standards. An artificially low price that puts everyone out of business. ”

A production tower at Hemlock Semiconductor’s Michigan facility.


Elaine Cromie for The Wall Street Journal

Write Josh Zumbrun at [email protected] and Bob Davis at [email protected]

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