Donald Trump’s time as president is coming to an end this week, so let’s take a look at one of his defining legacies, the trade war with China, and how Joe Biden may take it forward.
The trade deficit was a key focus for Trump during his campaign trail. The deficit actually widened for three of the last four years, with the exception being 2019. Although it was still wider then than it was in 2016 and was largely the result of retaliatory tariffs.
The idea that tariffs would reduce the trade deficit and bring jobs back to America had long been disputed by economists, but that was the direction taken anyway.
The evidence now shows that despite tariffs, the majority of offshore US manufacturers did not return to domestic production. Since the consumer market in China is rapidly growing and there are very strong manufacturing capabilities there, it’s quite a strong pull for companies despite the burden that tariffs may have added.
The trade deficit actually accelerated during 2020 with demand for things such as computers rising, as more people began working from home, and the need for medical equipment increased.
This shows that the US is still very reliant on Chinese manufacturing. When the pandemic hit the US, China was in a unique position of being capable of scaling up production to meet that huge level of demand.
In the end, tariffs were actually an extra burden on US consumers, as the majority of Chinese exporters didn’t reduce their prices to increase their competitiveness. Instead, the US consumer footed the bill and, according to a study from the National Bureau of Economic Research, the amount tariffs cost consumers, at least back in 2018, was $16.8 billion.
Attempting to reduce Chinese imports through the use of tariffs is also a double-edged sword because US companies have integrated supply chains with China and split manufacturing in different countries. Therefore, this raises the cost of US goods and makes them less competitive in the international market, resulting in lower exports.
Since manufacturing hires, even in target industries such as steel, stalled in 2019 (partly due to lower exports), this shows that tariffs largely failed the objective of bringing jobs to the US and cutting the deficit.
Now let’s be fair here. First of all, a trade war isn’t just a one way thing and taking policy action like this can have different outcomes depending on how other parties respond. So it isn’t always fair to judge things purely based on the outcome that was achieved. Secondly, from a political point of view there were obviously other reasons for taking this sort of action.
The perception domestically of America First policies and standing up for American interests obviously goes hand in hand with the Make America Great Again promise. From that point of view, you have to give it to Trump, he took strong action and it has quite clearly resonated with a huge percentage of the population. He also showed that the US were willing to stand up to the rising power of China regardless of the consequences.
There were positives from the situation, as US tariff pressure may have helped result in tougher IP protections in China, which was another key focus for the Trump administration. So whether you’re pro or anti Trump, you have to look at both sides and give credit or criticism where it’s due.
But, how are these policies likely to change as the next administration takes over?
It’s largely expected that Joe Biden will take a relatively less aggressive approach to international trade. Remember, it wasn’t just China that was hit with tariffs, other countries including America's close ally Canada were also targeted.
For now, Biden has signalled tariffs with China will remain in place and the current deals will be put under investigation before any further decisions are made. However, reducing the burden on US consumers may not be seen as a bad move right now given the current economic environment.
As far as Trump supporters saying Biden will give the country to China, I don’t think that will be the case and it seems many of the measures Trump put in place are here to stay for now, but there will definitely be a bit of a step back from the situation.
