Trade war is not an accurate term when describing what President Trump did with China this week. The last two administrations have mentioned the need to lower the trade deficit with China. Our deficit with China is now 500 billion dollars a year,meaning we buy 500 billion dollars more things from them than they buy from us. This deficit has only gotten larger over the years, not smaller.
Another thing President Trump mentioned is China’s theft of our innovations. For many years China has stolen our intellectual developments along with many other countries. Why? Well because there is no incentive for innovation in socialist/communist countries. Why; because there is no financial gain for an individual or company to develop anything new because the government or state will confiscate most or all of the profits. This is why China steals different company’s products or ideas, copies them, then sells them at a lower cost because the Chinese government subsidizes the cost of production and the labor costs are so much lower.
President Trump took the first step in getting China’s attention. No other American President has done this in the last 20 years. I have to ask you a question, why would China want to negotiate a more fair trade deal with us if the only thing that has happened in the last 20 years is their trade with us is in their favor? They wouldn’t unless we do something to make them understand that we are no longer going to sit back and take their abuse. This is exactly what President Trump did this week.
I know, I saw what the stock market did. I felt the pain just as many millions of 401K participants did; however, this is short term pain for long term gain.
If you remember , one of the cornerstone parts of the Tax overhaul passed last year was lowering the corporate tax rate. This was step one in making an effort to bring back manufacturing jobs to America. As I have said before, manufacturing jobs typically are higher paying and come with benefits such as health coverage and retirement savings plans.
In China, the government controls all means of production; in other words, there is nothing that is produced in China without either the government directly owning the business or licensing the foreign company with strict requirements to share the technology and heavy fees for operating a business in China. In order for communism to function, it must keep its people employed. People who have no work and no money tend to rebel and revolt, which is a communist nightmare.
This is why China places heavy tolls and tariffs on many of our items making it impossible for our products to be sold in China. After the Chinese government applies the tariffs and tolls, American goods are too expensive for the average Chinese to purchase. This forces Chinese people to purchase Chinese goods and this keeps Chinese people working, no matter what the quality of the products is.
Meanwhile, many manufacturing jobs left America and plants were built in China to take advantage of low worker wages, low regulatory requirements, and to escape the high corporate tax rate. This is why thousands of things we buy are stamped Made in China. So the Chinese economy continues to grow at 7 to 9% every year and our economy does well to hit 3%.
Levelling the playing field will not happen overnight. It may never be level, but it can certainly be better than it is now. China must reduce the tolls and tariffs on some of our goods so that they can be affordable for the average Chinese person.
The one way trade situation we have now with China is unacceptable. It penalizes our economy and our workforce. So, President Trump is taking step two in bringing manufacturing jobs back here to America in trying to make China open up their markets to American goods.
Obviously, just asking China to do this for the last 20 years has not worked so a different more painful approach is justified. China is no different than anyone else, when you hit them in the pocketbook, they take notice.
Also I might add, they have a lot more to lose than we do.