Now, I am definitely a bit biased here as someone who has lived in Shanghai for 8 years, has a Chinese wife, and livelihood depends on transpacific trade, but I am still most definitely American and want to see our country succeed. Just wanted to share a few thoughts why this recent attempt to throw tariffs at a very complicated solution is not the right solution and this is definitely not the right time:
1.
My dad grew up in Clinton, South Carolina. It was home to textile mills until it wasn’t. Those mills closed when NAFTA was started NOT when China was prime source for American companies to outsource oversea. Textiles for the large part are not made in China anymore, now they are made in places like Bangladesh, Vietnam, India, and Pakistan. As soon as the outsource to the cheapest country with the lowest labor business model eventually runs its course, the robots will be the most cost-effective way to do the work. And yes they may take those factories back to America but the only jobs for humans will be as maintenance worker.
2.
I recently went to a logistics conference here in Shanghai (http://www.intermodal-asia.com/). Check the agenda. Where this kind of conference would usually have a strong focus on China transport to Western countries, last week it was ALL about One Belt One Road (OBOR). China is building its new export consignees one loan and one infrastructure at a time. Chinese influence in the world as a source of funds through AIB and the strong push from the central government to subsidize goods through cheap transit is giving them a strong pool of new buyers. In other words, China, bolstered by President Xi’s recently announced long term leadership, is riding high in confidence and alternatives, so the US leverage it had in the past is diminishing.
3.
Walk the streets of Shanghai and see what the people are wearing, talking on, driving, and looking at – all foreign goods for the most part. China’s living standard and amount of disposable income has been rising significantly and there is a demand for foreign consumer goods. China recently announced their intentions to raise living standards by dropping tariffs on some imported foreign goods, so that not only the more wealthy in the 1st and 2nd tier citizens can afford these goods but the other 5-600 million citizens could as well. The US would have been in a great position to take advantage of this second round of "opening up" but now has put that opportunity to export its goods and services at risk.
4.
If you want to blame someone for the lopsided trade deficit (which is not necessarily a bad thing), why blame China? They didn’t force the Fortune 500 companies to come over here and manufacture/procure their goods. That was a decision that corporate America did all on their own. Or if your prerogative is to support Made in USA products, simply do what my dad did growing up, if you see something with "Made in China" or "Made in India" on the label inside of the product, don't buy it. Simple as that.
5.
Sure, IP theft and copying of goods has been a problem BUT a.) as China has moved up the value stream things are getting better as they have more of a vested interested i.e. the damage is done and IP protection has gotten a lot better over the past 8 years and b.) ask the CEO’s of those companies who had issues with theft whether they knew there was a probable or significant risk of this security issue happening before they arrived to do business here. If they didn’t know, then they didn’t do their due diligence. If they did and went ahead anyways, then they took a calculated business risk to enter the hottest consumer market in the world with low labor costs and they probably still came out on top. This isn’t an excuse for the behavior just stating what people should know before they jump to assigning all the blame on one side.
6.
If this “trade war” does actually happen and the amount of imports to the US falls, it might actually be a blessing in disguise as there aren’t enough truckers in the US to move the goods anyways. With the pending implementation of electronic logging devices (ELDs) and an already lackluster candidate pool of the next generation of truck drivers, the amount of drivers in the US is falling fast and making it increasingly difficult to move goods in a timely fashion. We complain about jobs being stolen by other countries yet trucking and warehousing jobs remain unfilled. Don’t worry though, outsourcing is the problem of the past and automation is elephant in the room of today. Trump’s new tax bill promotes CapEx, through a tax incentive, which primes companies to spend that rainy day fund on a new BPO system or an automatic sorting machine (and soon autonomous vehicles). Don’t expect an even trade balance with China for hard goods or India with services to be the answer, America needs to take begin to retool the workforce by training its workers with skills for the new digital era and let go of the past.
7.
Read Hank Paulsen’s book Dealing with China. Throughout the Bush and Obama administrations, there were teams of experts from the US side helping to create policy and brainstorm how to carefully handle this relationship. The reason why? Because Eastern and Western mentality on negotiation tactics are very different and the subtle nuances can be extremely important i.e. convincing China to not dump their US securities during the 2008 financial crisis which averted an even worse disaster. What we saw last week was a direct threat, one that will be followed by 15 days before details are laid out and then subject to 30 days of public opinion. Essentially the Trump administration is exacerbating the situation while not actually doing anything. A public debate, rather than one done behind closed doors, is not the way to deal with the current China administration who wants calm, steady, and predictable growth…and most definitely can’t show weakness at this moment as they have just consolidated power and need wins.
8.
Lastly, I was convinced that Trump wouldn’t pull this move but I guess Navarro kept reminding him of his campaign promise. I was convinced the moment Trump pulled out of TPP. I thought to myself well you can’t NOT join the the TPP, threaten NAFTA and then also spite China, otherwise where are you going to get the inventory to stock the shelves of the retail stores? Well I guess he used the logic that the retail stores are disappearing, so the consumer’s won’t need the goods anyways…
I don’t pretend to have the answer to what should be done instead but certainly a.) promoting skills for US workers to move up the value chain for R&D, IT, clean energy, and jobs that are NOT rote task related would be a good starting point b.) find goods that are still made in the US – medical devices, industrial machines, aerospace parts, health related goods, etc. and use whatever soft power we have left to find those goods export buyers through mutually beneficial agreements and c.) hold those Fortune 500 companies responsible for outsourcing jobs overseas and ask their help to come up with a solution. For example, how can they offer training and apprentice programs to help retrain the members of their communities for the jobs that WILL be there in the future. Get these companies to work with universities and local governments to share their insights to develop curriculum and subsidies to get our students studying relevant topics which will ready them for the future.
Education is key – World is flat and tariffs aren't going to change that – corporations need to live up to their “social responsibility”.