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| DATE | 2020-10-25 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] China Trade War
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wsj.com
China Trade War Didn’t Boost U.S. Manufacturing Might
Josh Zumbrun and Bob Davis
11-14 minutes
WASHINGTON—President Trump’s trade war against China didn’t achieve the
central objective of reversing a U.S. decline in manufacturing, economic
data show, despite tariffs on hundreds of billions of dollars of Chinese
goods to discourage imports.
The tariffs did succeed in reducing the trade deficit with China in
2019, but the overall U.S. trade imbalance was bigger than ever that
year and has continued climbing, soaring to a record $84 billion in
August as U.S. importers shifted to cheaper sources of goods from
Vietnam, Mexico and other countries. The trade deficit with China also
has risen amid the pandemic, and is back to where it was at the start of
the Trump administration.
Another goal—reshoring of U.S. factory production—hasn’t happened
either. Job growth in manufacturing started to slow in July 2018, and
manufacturing production peaked in December 2018.
Mr. Trump’s trade advisers nonetheless say the tariffs succeeded in
forcing China to agree to a phase one trade deal in January, in which
Beijing agreed to buy more U.S. goods, enforce intellectual property
protections, remove regulatory barriers to agricultural trade and
financial services and to not manipulate its currency.
They also say the tariffs—which remain on about $370 billion in Chinese
goods annually—will over time force China to end unfair practices and
help rebuild the U.S. manufacturing base.
Tariffs “are having the effect of bringing manufacturing jobs back to
the U.S.,” U.S. Trade Representative Robert Lighthizer said in an
interview, citing statistics that show a net gain of 400,000 U.S.
manufacturing jobs from November 2016 until March 2020, when the
pandemic forced widespread factory closures.
However, about 75% of the increase in manufacturing jobs occurred before
the first tranche of tariffs took effect against China in July 2018,
when annual growth in manufacturing jobs peaked and then began to
decline. By early 2020, even before the pandemic reached the U.S.,
manufacturing job growth had stalled out, and factories shed workers in
four of the six months through March.
An industry-by-industry analysis by the Federal Reserve showed that
tariffs did help boost employment by 0.3%, in industries exposed to
trade with China, by giving protection to some domestic industries to
cheaper Chinese imports.
But these gains were more than offset by higher costs of importing
Chinese parts, which cut manufacturing employment by 1.1%. Retaliatory
tariffs imposed by China against U.S. exports, the analysis found,
reduced U.S. factory jobs by 0.7%.
Mr. Trump is one of a long line of U.S. presidents to use tariffs to
protect favored industries. President Obama put steep tariffs on Chinese
tires, President George W. Bush imposed tariffs on steel and President
Reagan hit Japanese televisions and computers.
But Mr. Trump’s enormous increase in tariffs on Chinese goods
represented a sharp departure in post-World War II economic history.
Since the war, the U.S. has led round after round of global trade talks
aimed at reducing tariffs. No longer.
“This is the biggest use of tariffs since the Smoot-Hawley tariffs”
during the Great Depression, said Chad Bown, a trade expert at the
Peterson Institute for International Economics. “The economic impact is
going to take years to play out.”
Mr. Trump has called himself a “tariff man” and said businesses that
complain about the impact of tariffs should simply build factories in
the U.S.
“I happen to be a tariff person because I’m a smart person, OK?” Mr.
Trump said in an interview with The Wall Street Journal in November 2018
as the trade war intensified. “We have been ripped off so badly by
people coming in and stealing our wealth.”
The tariff strategy, however, played out differently for manufacturers
depending on their individual circumstances. That is shown by the
experience of two Midwestern manufacturers, Atlas Tool Works Inc. and
Hemlock Semiconductor Operations.
Illinois-based Atlas said sales of its brackets, gears and conveyor
belts used in manufacturing rose 18% in the year after Mr. Trump placed
tariffs on similar parts from China. But Hemlock, a Michigan company
that makes polysilicon used in computer chips and solar cells, is still
struggling.
The phase one trade deal signed by Washington and Beijing in January
specified that China would buy more U.S. solar-grade polysilicon,
Hemlock’s main product. But China never lifted its tariffs on
polysilicon—just as the U.S. kept tariffs on most Chinese imports—and
Hemlock didn’t register any gains.
Hemlock Semiconductor CEO Mark Bassett initially supported President
Trump’s efforts to help U.S. solar companies but later came to believe
that deeper changes were needed.
Photo: Elaine Cromie for The Wall Street Journal
“We’ve reached out to Chinese companies, ‘Are you interested in buying
polysilicon?’” said Phil Dembowski, Hemlock’s chief commercial officer.
“But they all tell us the same thing—no mechanism to import it without
paying duties. They’d like to, but they can’t afford that tariff.”
Atlas, by comparison, was able to benefit from the tariffs because it
shuns Chinese suppliers—a point of pride for the family-owned business
founded in 1918.
The company says it was forced to close a lucrative business supplying
telecom-gear makers in the early 2000s because of Chinese competition.
Atlas refocused on fabrication equipment for the defense and health-care
industries, but that eventually came under assault from cut-rate Chinese
competition too, according to owner Zach Mottl.
When Mr. Trump approved tariffs in 2018, sales boomed. Atlas had no
Chinese suppliers, so its costs remained stable. The company, which had
about 100 employees before tariffs, added about two dozen new positions.
“We saw the uptick right away when the tariffs hit,” Mr. Motti said.
But for companies including Hemlock, the tariffs backfired. Rather than
pressuring Beijing to open markets, China responded with retaliatory
tariffs that made Hemlock’s products more expensive there. And U.S.
companies that buy parts from China suddenly faced higher costs.
U.S. trade negotiators recognized that many U.S. companies, like
Hemlock, were dependent on Chinese supply chains, and sought to get
China to agree to pare back its industrial subsidies. But the U.S.-China
trade deal signed Jan. 15 failed to achieve that goal, which was put off
for future talks that have yet to materialize.
Mr. Trump and his opponent, former Vice President Joe Biden, have
tangled over whether the president’s trade and tariff policies have
brought back factory jobs. “They gave up on manufacturing,” the
president said of Messrs. Biden and Obama in the first presidential debate.
Mr. Biden was equally dismissive of the Trump record during the session,
saying that “manufacturing went into the hole” even before the pandemic.
Even so, Mr. Biden’s top advisers don’t commit to rolling back the Trump
tariffs on China. Rather, they say the vice president would consult with
allies on what to do about the levies. “Tariffs would be among the tools
we would consider in an allied approach,” said senior Biden adviser Jake
Sullivan.
Derek Scissors, 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 to apply tariffs, there are reasons the bilateral
deficit can matter, but it’s not the big payoff of manufacturing jobs,”
Mr. Scissors said.
Americans might be getting lower-quality toys for the same price this
Christmas, despite a limited U.S.-China trade deal. WSJ toured the
Chinese city that churns out Frozen and Peppa Pig gadgets to understand
the impact of tariff threats. (Published 12/16/2019) Photo: AP Photo/Ma Ka.
Mark Bassett, the CEO of Hemlock, was enthused to see the Trump
administration’s efforts to level the playing field in the solar
industry. But he came to believe more fundamental changes were needed
for his company and others that compete against Chinese rivals who are
subsidized by Beijing.
“You need to take a look at things a little more holistically, rather
than a whack-a-mole methodology,” Mr. Bassett said, comparing tariffs to
the arcade game in which targets keep popping up.
SHARE YOUR THOUGHTS
How could the U.S. revitalize its manufacturing sector and reduce its
trade deficit with China? Join the conversation below.
Chinese companies that make solar panels bought $1 billion of American
polysilicon, like Hemlock’s, in 2010. Anticipating continued strong
sales to China, Hemlock spent more than $1 billion to build a new
factory in Clarksville, Tenn., that was completed in 2012.
But China had plans of its own. Solar was specifically identified as a
strategic industry for Chinese dominance in “Made in China 2025,” the
country’s national plan to dominate high-tech manufacturing. That plan
included making solar-grade polysilicon—turning China into a competitor
to Hemlock instead of a customer.
Solar-grade polysilicon exports to China had shriveled to $107 million
by 2018. The plant in Clarksville never operated, and was closed in 2014.
“It’s the classic Chinese industrial story,” said Mr. Bassett.
“Continued subsidization, no requirements to deliver a return on
investment, no enforcement of environmental or safety standards. An
artificially low price that drives everyone else out of business.”
A production tower at Hemlock Semiconductor’s Michigan facility.
Photo: Elaine Cromie for The Wall Street Journal
Write to Josh Zumbrun at Josh.Zumbrun-at-wsj.com and Bob Davis at
bob.davis-at-wsj.com
Corrections & Amplifications
The surname of Zach Mottl was misspelled as Motti in earlier version of
this article. (Corrected on Oct. 25)
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