US, China sign partial trade pact, but economic danger remains
Monday, January 27, 2020
The nearly two-year trade war between the U.S. and China has cooled down since President Donald Trump and Chinese President Xi Jinping signed a “phase one” pact to reduce hostilities. What does this mean for American firms and workers?
On one hand, the pact calls for China to buy an additional $200 billion in U.S. goods over the next 24 months. That total includes $40 billion of American agriculture.
For the short-term, there is long-awaited relief for soybean farmers in the Midwest. They have watched in dismay as their revenue dropped when China stopped buying American agricultural imports. In response, Brazilian soybean producers increased their imports of this commodity to China. American soybean farmers lost sales and market share, a nightmare scenario.
Is it time to pop the champagne corks? Derek Scissors is a resident scholar at the American Enterprise Institute in Washington, D.C. He takes a rather dim view of the phase-one accord between the China and the U.S.
“China generally wants American farm products,” according to Scissors. “When it doesn’t, it will create new barriers. There is no way to prevent this with language in a formal agreement — Beijing’s control of the economy is much too extensive to anticipate and prohibit every possible intervention.”
Turning to the American labor force, bilateral trade with China has been a negative factor. The U.S. economy has shed 3.7 million manufacturing jobs since 2001, when China entered the World Trade Organization, according to Robert Scott, a senior economist at the Economic Policy Institute in Washington, D.C.
“Growing imports eliminate existing jobs and prevent new job creation — as imports displace goods that otherwise would have been made in the United States by domestic workers,” according to Scott. In other words, low-cost imports assembled in China that are on store shelves throughout the U.S. have a high price in terms of weakening hiring among domestic goods-producing firms.
Historically, goods-producing jobs have paid high wages due to labor union agreements with companies. Thus, the trend of declining manufacturing job losses is a drag on the living standards of American workers.
Why? Union-free service employment tends to pay lower wages versus goods-producing jobs with collective bargaining agreements that include employee benefits such as guaranteed cost-of-living pay hikes and employer-paid health and pension benefits.
In addition, a reduction in factory employment subtracts from buyer demand in the U.S. economy. Weakened purchasing power negatively affects businesses, from small to midsize and large. Small firms are most at-risk of weakened buyer demand, as they lack the cash flow to weather downturns as larger firms can and do.
Placing tariffs, or import taxes on goods arriving stateside from China, has not delivered employment growth.
“Despite all of the tariffs and other restrictions imposed on China trade by the Trump administration,” according to EPI’s Scott, “the bilateral trade deficit continued to grow between 2016 and 2018, resulting in the loss of more than 700,000 U.S. job opportunities.”
Will the phase-one trade deal with China open the doors to improved prospects for American firms and workers? After that two-year agreement period ends, the future of trade between the world’s two biggest economies is unclear, generating no small amount of uncertainty.
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