AJanuary 2021 study commissioned by the U.S.-China Business Council (USCBC) claims that former president Donald Trump’s trade policies cost the United States 245,000 jobs. As a Reuters news report put it, the USCBC claimed that “a gradual scaling back of tariffs” could help stop the bleeding, while also arguing that a failure to do so would lead to even greater job losses and more sluggish growth.
But while I have long argued that Trump’s approach to trade harmed the U.S. economy more than it helped, this is mainly because these trade policies were based on obsolete ideas about how trade works and because they ignored the fundamental sources of the U.S. trade imbalances. As Matthew Klein and I argued in Trade Wars are Class Wars, bilateral tariffs on Chinese goods do nothing to change the income distortions in China that spurred the country to run huge surpluses and export its deficient levels of domestic demand. Nor do such tariffs address the mechanisms that send these demand deficiencies to American shores. As a result, even if Trump’s tariffs were to succeed in reducing the U.S. bilateral deficit with China, they would simply cause the U.S. deficit with the rest of the world, along with China’s surplus with the rest of the world, to rise by at least as much. Read more…..
Chart of the Day
Nonfarm payrolls increased by 1.37 million in August and the unemployment rate tumbled to 8.4% as the U.S. economy continued to climb its way out of the pandemic downturn.