Trump’s Trade War with China Benefits Big Corporations—Not Ordinary Workers

Dean Baker

U.S. President Donald Trump speaks during a retreat with Republican lawmakers at Camp David in Thurmont, Maryland, January 6, 2018. (SAUL LOEB/AFP/Getty Images)

Some events give extra­or­di­nary insights into the bias­es of the eco­nom­ics pro­fes­sion. The trade war with Chi­na clear­ly fit the bill.

The ori­gins of the trade war can be traced to cam­paign promis­es Trump made to go after Chi­na over its large trade sur­plus with the Unit­ed States, which he attrib­uted to cur­ren­cy manip­u­la­tion.” The argu­ment was that by inter­ven­ing in cur­ren­cy mar­kets (buy­ing up U.S. dol­lars), Chi­na was prop­ping up the val­ue of the dol­lar against its own currency.

This makes Chi­nese goods and ser­vices rel­a­tive­ly cheap­er to U.S. con­sumers and makes U.S. goods more expen­sive to Chi­nese pur­chasers. The net effect is to increase U.S. imports of Chi­nese goods and reduce U.S. exports to Chi­na, there­by lead­ing to a large trade deficit.

While most econ­o­mists now acknowl­edge that Chi­na was inter­ven­ing in cur­ren­cy mar­kets in the last decade (they did not acknowl­edge the cur­ren­cy inter­ven­tion at the time), they insist that this is no longer an issue. Chi­na is no longer a large net buy­er of dol­lar denom­i­nat­ed assets, so the argu­ment goes, there­fore it is not cur­rent­ly keep­ing down the val­ue of its cur­ren­cy against the dollar.

As I have argued else­where, this argu­ment ignores the effect of Chi­na hold­ing well in excess of $3 tril­lion worth of dol­lar denom­i­nat­ed assets. Its deci­sion to hold a mas­sive stock of dol­lar assets depress­es the val­ue of the Chi­nese yuan against the dol­lar, there­by main­tain­ing the com­pet­i­tive advan­tage from a low­er val­ued currency.

This is the same log­ic that applies with the Fed’s deci­sion to hold tril­lions of dol­lars worth of assets that it acquired as part of its quan­ti­ta­tive eas­ing pro­gram. Even though the Fed is not cur­rent­ly buy­ing assets, most econ­o­mists argue that its hold­ing of assets still works to keep down inter­est rates. Per­haps in the next decade they will acknowl­edge that the same rela­tion­ship holds with China’s mas­sive stock of dol­lars and the rel­a­tive val­ue of the dol­lar and the yuan, but for now they insist that cur­ren­cy inter­ven­tion was only an issue in the past.

This is impor­tant back­ground, because cur­ren­cy val­ues will direct­ly affect our trade bal­ance with Chi­na, and there­by impact the num­ber of man­u­fac­tur­ing jobs in the Unit­ed States. While reduc­ing the trade deficit will not get back most of the rel­a­tive­ly high pay­ing man­u­fac­tur­ing jobs that were lost in the last decade, it would like­ly still be a plus for rel­a­tive­ly less-edu­cat­ed work­ers who still rely on man­u­fac­tur­ing as a source of high­er pay­ing jobs.

Although cur­ren­cy is most­ly off the table in Trump’s trade war, intel­lec­tu­al prop­er­ty is very much on the table. And here Trump has the sup­port of econ­o­mists across the polit­i­cal spec­trum, who argue that he has a legit­i­mate com­plaint, even if they don’t endorse his go it alone cow­boy tactics.

The com­plaint is the Chi­na is not respect­ing our” intel­lec­tu­al prop­er­ty. This lack of respect takes two main forms. One is sim­ply not hon­or­ing the patents, copy­rights, and trade­marks of U.S. cor­po­ra­tions. The oth­er is requir­ing tech­nol­o­gy trans­fers by U.S. cor­po­ra­tions that locate oper­a­tions in Chi­na. This usu­al­ly means tak­ing on a domes­tic Chi­nese com­pa­ny as a part­ner, which will then gain exper­tise in the use of the U.S. company’s technology.

It is very impres­sive how the bulk of the eco­nom­ics pro­fes­sion has been will­ing to legit­i­mate the switch in focus of Trump’s trade war. He had run around the coun­try in his cam­paign denounc­ing Chi­na as a world class cur­ren­cy manip­u­la­tor. He pledged to take puni­tive actions against Chi­na for its cur­ren­cy prac­tices on Day One of his admin­is­tra­tion. Get­ting Chi­na to raise the val­ue of its cur­ren­cy against the dol­lar actu­al­ly would have pro­vid­ed some ben­e­fit to U.S. work­ers. But now cur­ren­cy is off the table and we are fight­ing a trade war to pro­tect our” intel­lec­tu­al property.

If it’s not obvi­ous already, it is not our” intel­lec­tu­al prop­er­ty that Trump and his bipar­ti­san crew of econ­o­mist cheer­lead­ers are inter­est­ed in pro­tect­ing. It is the intel­lec­tu­al prop­er­ty of large cor­po­ra­tions like Boe­ing, GE, Pfiz­er, and Microsoft. Very few peo­ple in the Unit­ed States are in a posi­tion where they have to wor­ry about Chi­na using their patents or copy­rights with­out com­pen­sa­tion. This is a real con­cern to many large U.S. cor­po­ra­tions. The ques­tion is whether it should be a con­cern to the rest of us.

Most imme­di­ate­ly, the con­cerns of ordi­nary work­ers are like­ly to go in the oppo­site direc­tion. If com­pa­nies like Boe­ing and Gen­er­al Elec­tric don’t have to wor­ry about being forced to trans­fer tech­nol­o­gy to Chi­nese com­pa­nies when they out­source to Chi­na, they will have more incen­tive to out­source to Chi­na. That’s about as straight­for­ward as it gets. Instead of reduc­ing our trade deficit in man­u­fac­tur­ing goods, this change is like­ly to increase it.

But this goes to an even deep­er issue. We have seen a mas­sive increase in wage inequal­i­ty over the last four decades. Most econ­o­mists prob­a­bly believe some ver­sion of the skills biased tech­ni­cal change sto­ry – that new tech­nolo­gies have placed a greater pre­mi­um on skills like math, sci­ence, and engi­neer­ing – while reduc­ing the val­ue of less-edu­cat­ed workers.

Trump’s trade war gives us an insight into the real sto­ry. It was not tech­nol­o­gy that led him to focus his efforts on pro­tect­ing intel­lec­tu­al prop­er­ty to the neglect of cur­ren­cy issues; it was a polit­i­cal deci­sion made in response to the polit­i­cal pow­er of the most affect­ed groups. And, Boe­ing, GE, and the rest have far more polit­i­cal pow­er than the work­ers who labor in their fac­to­ries or indeed, less-edu­cat­ed work­ers as a class.

Trump and the polit­i­cal elites more gen­er­al­ly are pre­pared to have a trade war to pro­tect the intel­lec­tu­al prop­er­ty of large U.S. cor­po­ra­tions, and indi­rect­ly to ben­e­fit the more high­ly paid seg­ment of the labor force. They would not do the same to increase the employ­ment and wage prospects for less-edu­cat­ed work­ers, the two-thirds of the labor force with­out a col­lege degree.

To be clear, there is an issue that we should not be allow­ing Chi­na to take at no cost the tech­nol­o­gy that we spent hun­dreds of bil­lions of dol­lars to devel­op. That is a rea­son­able argu­ment, but that hard­ly implies that we need to force them to respect patent and copy­right protection.

We need to ensure that Chi­na and oth­er coun­tries share in the cost of devel­op­ing new tech­nolo­gies. There are far more mod­ern and effi­cient mech­a­nisms than patent monop­o­lies, which are a rel­ic of the Medieval guild sys­tem. While nego­ti­at­ing shar­ing mech­a­nisms may be a dif­fi­cult process, it is not obvi­ous­ly more dif­fi­cult than pre­serv­ing the patent sys­tem. Pres­i­dent Oba­ma like­ly would have had the Trans-Pacif­ic Part­ner­ship com­plet­ed and approved by Con­gress before he left office if it had not been for hag­gling over terms of drug patent-relat­ed protections.

It is also impor­tant to rec­og­nize that we will like­ly have far more to gain from hav­ing access to China’s tech­nol­o­gy than the oth­er way around. Chi­na is already far and away the glob­al leader in clean tech­nolo­gies, with as much installed solar and wind ener­gy as the rest of the world com­bined, and an elec­tric car indus­try that now pro­duces as many cars as all oth­er coun­tries put together.

Chi­na cur­rent­ly spends rough­ly the same share of its GDP on research and devel­op­ment as the Unit­ed States. Its econ­o­my is already 25 per­cent larg­er than the US econ­o­my and will be more than twice as large in less than a decade. Rather than focus­ing on bot­tling up U.S. tech­nol­o­gy, a for­ward-think­ing trade agen­da would be focused on ensur­ing our access to Chi­nese technology.

Unfor­tu­nate­ly, trade pol­i­cy is not craft­ed in the nation­al inter­est, it is craft­ed with the goal of mak­ing the rich rich­er. This is what Don­ald Trump’s trade war is all about. And, as is the case with so many oth­er wars, it is about work­ing class peo­ple being forced to sac­ri­fice by pay­ing high tar­iffs to advance the goals of the rich. 

This arti­cle is reprint­ed with per­mis­sion from the Cen­ter for Eco­nom­ic and Pol­i­cy Research.

Dean Bak­er is co-direc­tor of the Cen­ter for Eco­nom­ic and Pol­i­cy Research and co-author of Social Secu­ri­ty: The Pho­ny Cri­sis (Uni­ver­si­ty of Chica­go Press, 2000).
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