President Trump’s barrage of tariff hikes may bring short-term relief to battered industries and their workers. But Trump’s preferred package of measures doesn’t add up to a sensible economic policy even for the United States itself.
First, while these moves are significant, they will eventually squeeze workers in other sectors like autos and construction that rely on steel as an input, as was the case when President George Bush put in place similar tariff hikes in 2002.
Third and most importantly, trade deals are not ends in themselves but tools to implement broader economic policy goals.
In particular, Trump lacks a set of innovation and industrial policies that countries like China and Germany deploy to build strong industry. Rather than investing in America, Trump pushed through a major tax cut that slashes investment and jeopardizes the United States’s ability to do so in the future. According to the Congressional Budget Office, the tax cut will widen the deficit to $1 trillion per year in 2020.
Learning from China
The United States should adopt a China-like strategy. In the early 1980s, China started to further integrate itself within the global economy. China’s strategy was to invest heavily into infrastructure, industry and innovation in the country. It did so to the tune of more than 40% of annual GDP for decades.
China also kept a tight rein on financial markets to ensure credit and investment were steered into strategic industries that would someday become globally competitive.
When U.S. and other multinational companies flocked to invest in China, these firms were lured by the prospect to tap into the fastest growing market in world history. In exchange for that access, they were happy to tradetechnology and knowledge.
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