With another spate of China tariffs in the works, the Trump administration seems dedicated to avoiding “Death by China,” as described in the documentary film produced a few years back by President Trump’s now-special adviser Peter Navarro. Convinced that China’s prosperity, fueled partly by exports to the United States, translates directly to lost jobs and lower income for Americans, Navarro seems to disregard some economic facts.
When a nation like the United States consumes annually more resources than it produces, there have to be other countries that produce more than they consume. China, of course, falls into the latter category.
But does this mean we disregard China’s violations of trade law or China’s onerous limitations on U.S. exporters and weighty restrictions on U.S. service providers? Of course not. It is the duty of the U.S. State Department, Office of the U.S. Trade Negotiator, and Office of the President to deal with those matters, and there are mechanisms in place for doing so.
But those negotiations should be undertaken with full recognition that the American economy gains from Chinese shipments of goods and services—and that some of the dollars we spend there get to come home.
How does it happen that the U.S. is such a seemingly spendthrift nation of people? Have we lost our way in an economic wilderness?
Well, not exactly. First off, the U.S. is a haven for new investment in patents, real estate, and advanced manufacturing. American savers simply do not supply enough dollars to meet investment demand. People worldwide fill in where we leave off; they demand dollars to fund investments in America. Then, while American consumers do save, the American government does not. We are consuming (and investing) more than we produce. China enters the picture again. Our Chinese neighbors buy U.S. government bonds that enable us to help fund our deficit.
So if in an attempt to avoid “Death by China,” we close our borders to Chinese goods, but do nothing to reduce our federal deficit or to increase our savings, what will happen? The lack of competition from internationally produced goods will lead to higher prices, the disappearing pool of U.S. dollars held by Chinese who previously sold goods in the U.S. will lead to higher interest rates on U.S. government bonds, and a slowing U.S. economy will need less foreign investment. GDP growth will fall, and we will all be poorer.
Maybe it is time to ditch “Death by China.” Maybe, just maybe, we need a documentary titled “Life by Trade.”
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
