Foreign trade is a classic win-win and although nations that don’t play by the rules need to be dealt with, the bottom line is that tariffs do far more harm than good.
Recent rhetoric and threats have added additional fuel to the already simmering trade war between the United States and China.
Stock markets and business leaders around the globe respond immediately and significantly to the ebb and flow of the situation, and we can expect ongoing volatility until it is resolved.
As I am writing, some hope of a truce has markets surging; by the time you are reading this, the situation could be very different.
Foreign trade is a classic win-win for participating countries.
Through imports and exports, consumer choice improves, prices are reduced, business opportunities escalate, and economies grow. I could go on.
There are times when nations don’t play by the rules and imbalances and other issues occur; those should be properly addressed.
The bottom line, however, is that tariffs do far more harm than good.
Some U.S. sectors are feeling negative effects, including farmers, manufacturers, and consumers, and Chinese leaders recently acknowledged dislocations and decreased growth.
Trade between the U.S. and China has been expanding rapidly.
Twenty years ago (in 1997), U.S. exports to China were valued at $12.9 billion and imports from China were $62.6 billion. By 2007, exports had grown to $62.9 billion, with imports up to $321.4 billion. In 2017, the U.S. exported $129.9 billion to China and imports were $505.5 billion. These increases are substantial, and notably U.S. exports have risen more than 60 percent faster than imports, which suggests anything but a problem.
The United States exports a variety of products to China. The top categories are civilian aircraft and parts (almost $16.3 billion in 2017), soybeans ($12.3 billion), automobiles ($10.2 billion), semiconductors ($6.1 billion), industrial machines ($5.4 billion), and crude oil ($4.4 billion).
Exports of most of these products have been increasing significantly, particularly aircraft and cars. As U.S. companies sell into the Chinese market, they increase volumes and revenues as well as employment opportunities.
On the import side, the largest category by far is cell phones and other household goods, with $70.4 billion in 2017.
Other technology-intensive products follow in line, including computers ($45.5 billion), telecommunications equipment ($33.5 billion), and computer accessories ($31.6 billion). Toys, games, and sporting goods are next, then apparel and textiles and furniture and household goods.
Consumers nationwide purchase these products, thus reducing prices and enhancing choices.
Strong trade agreements can facilitate the exchange of goods and services and add predictability.
The recent uncertainty and threat of a tit-for-tat trade war is causing businesses to delay investment, prices to increase, and economic growth potential to be diminished.
If the U.S. and China can iron out differences and strike a lasting deal, the benefits will ripple through both nations and, indeed, the globe.
M. Ray Perryman, Ph.D., is president and chief executive officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.