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There Are No Winners in a Trade War

Image: There Are No Winners in a Trade War
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Wednesday, 11 July 2018 01:04 PM Current | Bio | Archive

There is no question the tariff system between America and China grossly favors China. Not only does China impose excessive tariffs on American products, they manipulate their currency and steal America’s intellectual property and technology with no penalties or legal recourse.

This has fueled America’s $375 billion trade deficit with China.

Negotiations with China have largely been futile with successive Republican and Democrat administrations talking tough and doing nothing. The Trump administration’s “take no prisoners” approach to trade with China is long overdue but will likely have numerous unintended consequences. One thing is certain; the ultimate losers in this trade war will be small business owners and consumers in both countries that will pay more for goods and services.

I’m an American manufacturer, exporter, and intellectual property owner so I know firsthand what happens when I attempt to export my products to China. I’m hit with unfair tariffs and endless product certification requirements. My intellectual property must be revealed to Chinese government technocrats before my products receive the necessary certifications to be sold in the expanding Chinese market. Does anyone really believe this is not shared with Chinese manufacturers? I am constantly frustrated while my intellectual property is being ripped off and my products are being faked with impunity. Sadly, there is nothing I can do about it.

I’m not alone. American technology companies doing business in China are forced to share their technology with China. To get an idea of how much forced technology transfer costs the U.S., CNN reports that total theft of U.S. trade secrets accounts for anywhere from $180 billion to $540 billion per year, according to the Commission on the Theft of American Intellectual Property. As "the world's principal IP infringer," China accounts for most of that theft. Tally that up for the past 10 years and you can see the impact this would have had to rebalance trade!

This is one of the main reasons that President Donald Trump wants to impose punitive duties on Chinese exports. Many people think this is only fair, based on China’s trade practices. For example, the U.S. charges a 2.5 percent duty on cars imported to the U.S. American cars exported to China are hit with a 25 percent tariff. (Germany imposes a 10 percent duty on American cars vs. 2.5 percent charged on German cars imported to the U.S.). Does this sound fair in any universe?

Yet, a trade war with China is ill-advised. China has been anticipating this occurring and has taken steps to reduce its impact. Exports accounted for 19 percent of Chinese Gross Domestic Product last year, dropping from 35 percent in 2007, according to The Wall Street Journal.

China has accelerated its domestic consumption, making it less dependent on exports. The Chinese consumer has not been allowed by its government to get hooked on imports, resulting in Chinese consumers largely be unable to purchase most U.S. imports.

What many people overlook is that more than half of all U.S. imports from China are components and materials that U.S. manufacturers use to produce goods that then are sold domestically and exported. If the proposed tariffs take effect, it will cause a severe financial burden on American manufacturers and disrupt supply chains. As an American manufacturer, my material cost is increasing and will ultimately be passed on to our consumers. It is the way of the world.

Yet manufacturers won’t be the only ones impacted. U.S. farms are increasingly bearing rising economic burdens and since China is the second largest importer of U.S. agricultural products after Canada, increased tariffs on pork, fruit, and other farm commodities will further erode agricultural profitability at a time that family farms are closing down in record numbers. The soybean tariffs threatened by China will devastate soybean farmers that depend on exports to consume their crops and keep their prices up.

The answer is not, as some will advocate, sticking our heads in the sand and becoming an isolationist nation, sidestepping the tariff question. We tried this in 1930 when the Smoot–Hawley Tariff was implemented based on broad protectionist trade policies that raised U.S. tariffs on more than 20,000 imported goods. It led in large part to the Great Depression.

We need to negotiate agreements that deal with all aspects of trade and not just tariffs. Yes, we need reciprocal tariffs and competitive access to foreign markets. But we also must address currency manipulation, product regulations and certification, intellectual property protection, equal investing rights, access to agricultural markets, respect for the environment, due process under the law, and the respect of labor rights and human rights. We have many of these agreements already in place and they are paying big dividends. For countries that we have already concluded comprehensive trade agreements, when you add up all our imports and exports, the U.S. has a trade surplus. Why does no one ever seem to mention this? We do not need fewer trade agreements -- we need more.

It’s not as if America has stood idly by while China failed to compromise. There was hope that in 2001 when China joined the World Trade Organization they would play by the global rules but instead they simply gamed the system. Due to the dream of the illusive, neverending China market, Western countries have let it happen.

Author Steve Mosher recently told my "Made in America" radio show that “The naïve idealism of our ‘China hands’ has lulled America into a fool's dream of engagement with the People's Republic of China and its peaceful evolution toward democracy and freedom. China started the trade war 25 years ago and has accelerated cyberattacks and IP theft. If you can imagine a way to cheat, China will do it, and they have no compunction about hiring people for these tasks.”

Yet, it’s important to recognize the fact that the Chinese own $1.189 trillion in U.S. debt as of October 2017.

If we want to provoke China into a trade war, we need to be mindful that if China decides to “call in its chips,” the U.S. will face a potential economic disaster.

We also have to take into account China’s role in helping America negotiate with North Korea and scale back their nuclear ambitions.

Trump has said the tariffs will be temporary and they are his only tool to fix years of trade neglect by our negotiators. We must take solace that he has surrounded himself by advisors like Larry Kudlow and Stephen Moore, frequent guests on my radio show, who are very smart and advocates for fair and open trade.

This is some tough medicine to swallow. It may be unavoidable. The outcome has the ability to right decades of wrongs, provide a marketplace that benefits American and Chinese businesses and consumers, and strengthen the bonds with our trading partners.

Time will tell but one thing is certain; there are no winners in trade wars.
 

Neal Asbury is chief executive of The Legacy Companies.

© 2018 Newsmax Finance. All rights reserved.

   
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NealAsbury
This is some tough medicine to swallow. It may be unavoidable. The outcome has the ability to right decades of wrongs. Time will tell, but one thing is certain; there are no winners in trade wars.
neal asbury, trade war
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2018-04-11
Wednesday, 11 July 2018 01:04 PM
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