RUTHFULLY YOURS

At the beginning of his U.S. tour last week, China’s President Xi met with 650 U.S. business leaders in Seattle. Seattle was a natural place to visit.  It is home to the factories of one of America’s largest great export industries – Boeing. It is also a center of America’s tech industry.

Xi came to woo them. He reassured them that China will not discriminate against foreign businesses. He announced a large new aircraft order, one which came with the customary quid pro quo.  Just last week Boeing announced that it will build an aircraft plant in China.

We’ve seen this script before many times. Just a few months ago, GM made plans to import cars from China for sale in the United States.  This follows many years of  GM’s ‘collaboration’ with Chinese companies. Without doubt China has acquired much valuable industrial technology from the American firms that located factories in China.

China is also targeting tech.  This week Cisco Systems announced that it would produce computer servers in China, sharing its world-class technology with Chinese server manufacturer Inspur Group.

The Worsening Trade Deficit

At his September 25 press conference with President Xi, President Obama pretended that the U.S. trade relationship with China was improving. He said:

Since I took office, America’s exports to China have nearly doubled and now support nearly one million American jobs. Chinese investment in the United States helps support jobs across our country.

It is true that the U.S. exports of goods have grown since Obama took office, from $70 billion in 2008 to $121 billion for the year ending in July 2015. But at the same time, U.S. imports from China have grown much faster, from $338 billion in 2008 to $480 billion for the year ending in July 2015. The difference between imports and exports (the trade deficit in goods) has grown by $91 billion since President Obama took office.

In fact, the U.S. trade deficit with China just hit a record high of $359 billion for the year ending in July 2015. Since Obama took office, the difference between our imports and exports of goods with China has been worsening steadily, as shown in the graph below:

This is not good for the United States.  China engages in mercantilist practices that limit our exports to China and encourage their exports to us. For example, China’s recent devaluation of the yuan has made Chinese products less expensive to Americans while raising the prices of American goods to Chinese importers.

Since each American manufacturing worker produces about $100,000 worth of product, the current trade deficit represents about 3.5 million manufacturing jobs lost. If trade were to move to balance, the United States would get millions of jobs back.

But that’s not what the American business community and President Obama want. They want a “bilateral investment treaty” with China so that American companies can make more profits when they build factories in China.

Balanced Trade

Unlike the rest of the field, billionaire Republican presidential candidate Donald Trump is funding his own presidential campaign. Instead of soliciting donations from the companies that want to build new factories in China, Malaysia, Vietnam and Mexico, he is setting a pro-American trade policy.

He would demand that China import as much from us as we import from them. If Trump succeeds, American companies would build state-of-the-art factories in the United States for export to China and around the world. The American middle class would come back.  America would be great again.

Economic theory does not recommend any particular trade policy. But it does show that balanced trade is always beneficial to both trading partners.  We could achieve balanced trade by imposing the Scaled Tariff upon those countries with which we have sizeable trade deficits (for details see our 2014 book Balanced Trade). This would be a single-country-variable tariff that rises as our trade deficit increases, falls as our trade deficit goes down, and disappears when trade becomes balanced.

The factories that would be created by balancing our trade would create millions of well-paid factory jobs and would put us once again on the path to enduring economic growth. Research and development would come back from abroad with the factories.  Invention and innovation would once again create jobs here rather than abroad.

The Richmans co-authored the 2014 book Balanced Trade: Ending the Unbearable Costs of America’s Trade Deficits, published by Lexington Books and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.