Trump's plan to "bring back jobs from China" will have great and terrible economic effects



Donald Trump has repeatedly thundered that he is going to "bring back the jobs from China" (and also Mexico and Japan), countries with which we have trade deficits with, that is, we buy more products from than we sell to, which means that more people in China are employed in their countries producing goods for the US than Americans are employed selling goods to the Chinese.

In 2014, we exported 123 billion dollars worth of goods to China and imported 466 billion dollars worth of goods, for a total trade deficit of 343 billion dollars.

The way Trump would probably negotiate with the Chinese is to threaten to put tariffs on their products coming into America unless they opened up their markets more. The Chinese might respond by putting tariffs on American exports to China, reducing our exports. This system of high tariff walls was a factor which lead to the great depression of 1929. With fewer exports, fewer jobs only made the depression worse.

However, I do not believe that a threat by Trump to slap tariffs on Chinese imports to the US will lead to such retaliation, at least not for long. The Chinese are much, much more dependent on exporting to the US than we are to exporting to them. If all trade suddenly stopped between the two countries, China would have to find new employment for people producing 343 billion dollars worth of goods, but we'd only have to do the same for those producing 123 billlion dollars worth of goods.

In short, China has a lot more to lose. That's why I think it is easy to see that a President Trump would be successful in opening markets in China and other countries who have large trade deficits with us. Because they have more to lose, they would be much more likely to make concessions.

If their concessions merely entailed opening up more of their markets to American imports, it would be a tremendous win for our economy. A large number of new jobs would be created in America, just as Trump predicts.

However, the problem is not simply that of other countries having closed markets, particularly in the case of China. For China, a big issue is also currency devaluation. One way China boosts its exports is to reduce the value of its currency. There is a little over 6 Chinese yuans to the dollar. If it costs China 60 yuans to make a product, they can only break even if they sell it for $10. But if China devalues its currency, making, say, 10 yuans equal to a dollar, it still costs China only 60 yuan to make a product, but they can now break even by only charging $6 for it.

A President Trump might persuade the Chinese to raise the value of the yuan so American exports to China won't be so expensive. That's good. But doing so also raises the costs of exports to the US. The result will invariably be higher cost of consumer products.

Does anyone remember 20 years ago when PC's were over $2000? Or when stereo receivers were over $500? (And that was 20 years ago, when money was worth much more than today). Nowadays you can buy a PC for $500, or less, and a stereo receiver for $200, or less. The difference is reduced costs from importing from China. If Trump is successful, consumer goods are going to cost a lot more. Computers won't go back to costing $2000, but they will cost a lot more than just $500. And that increase in cost will be not just for computers but everything we import from China from car parts to construction materials. The cost of living will rise and the middle class will be less able to afford consumer goods.

So if you're going to vote your economic interests, and you're unemployed, it may make sense to vote for Donald Trump because his plan may result in your getting a job. But if you're already employed, the cost of everything you buy is going to go up, meaning a vote for Donald Trump will hurt you economically. Which is not to say that a vote for Trump might not still be worth it, if issues like immigration and national security are primary to you.

(Abridged version originally published in AT)



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