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  June 5th, 2018 | Written by

Trump’s Trade Policy Seesaw

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  • The goal of reducing the US trade deficit was the paramount Trump policy goal.
  • The US has been trying to these Chinese to buy more agricultural commodities and natural gas.
  • Should it be the US goal to increase its exports of commodities?

Back when the Trump administration seemed intent on defusing potential trade wars and discussing differences with trading partners—in other words, last week—the goal of reducing the United States trade deficit was the paramount policy goal.

In discussions with the Chinese, for example, the US was trying to get them to commit to buying more agricultural commodities and natural gas, in an effort to reduce the US trade deficit with China by $200 billion.

A preliminary question raised: Is that the best the US can do? In other words, should it be the US goal to increase its exports of commodities? Or is it more important to increase the competitiveness of value-added manufactured and intellectual property-based products in foreign markets such as China?

The flip side to those questions is that getting the Chinese to buy more US soybeans and natural gas is not such a big accomplishment: they are going to have to buy them from someone. All this would make farm and energy states happy, but it is questionable at best whether a focus on trade deficits would accomplish much more than that.

A recent article in The New York Times suggests that the goal of trade negotiations with China should be to “reset a dysfunctional economic relationship between the world’s two biggest economies, in hope of ensuring that the United States maintains competitive footing in the industries of the future—even if dividends aren’t immediate.”

Trump’s strategy, by contrast, appears to be going for quick wins, with “no payoff in terms of solutions to bigger, longer-term problems.”

A boost in agricultural and energy exports to China would do nothing to enhance the fortunes of US sectors that offer the most promise for future export-related jobs. US auto and semiconductor companies among others complain that the Chinese government requires them to enter into joint ventures with Chinese companies and to share their technology. They say their Chinese partners often steal their intellectual property. Many US firms compete with Chinese companies that are heavily subsidized by the state.

These kinds of issues can’t be fixed overnight, and even if Trump wins some concessions from the Chinese, it may be years, if ever, before anything is reflected in the trade deficit. Conversely, focusing on the trade deficit and quick wins almost by definition means the US government is ignoring these more complex issues.

But all of this is now up in the air as the administration has decided to impose tariffs on imports from China. While these are supposedly designed to address Chinese intellectual property abuses,  they will also the effect of hurting US companies that use Chinese components in their manufacturing or that export intellectual property that ends up in products assembled in China.

One thing appears certain: the Chinese are unlikely to agree to but more US products while under the tariff gun. So much for reducing the trade deficit.