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How China won Trump's trade war and got Americans to foot the bill

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Published in News & Features

Growth in U.S. manufacturing jobs flatlined in 2019, partly due to falling exports. Even regions home to industries such as steel, which received explicit protection from Trump’s tariffs saw declines in employment, according to research by New York University Stern School of Business economist Michael Waugh, suggesting that the trade war didn’t significantly alter the trajectory of U.S. manufacturing.

“That stuff is just naturally going to move offshore. The protection maybe delays it a little bit,” Waugh said. “There’s no evidence that the tariffs benefited workers.”

The pandemic’s disruption to the world economy in 2020 makes it difficult to estimate the effect of the tariffs on jobs and investment.

The Trump administration claimed that tariffs provided leverage over the Chinese, which would force them to make reforms to benefit U.S. companies. “I love properly put-on tariffs, because they bring unfair competitors from foreign countries to do whatever you want them to do,” Trump said.

The biggest victory claimed by the administration as part of its trade deal were promises from Beijing to enhance intellectual property protections. But that was probably in China’s interests anyway.

Mark Cohen, an expert on Chinese law at Fordham University in New York, said that while Beijing has made “tremendous legislative changes” to strengthen IP protection in the past two years, its own motivation to enhance innovation may have been a more important factor than U.S. pressure. The agreement didn’t “push the structural reforms in China that would make its system more systemically compatible with most of the world,” he added.

Chinese companies paid a record $7.9 billion in intellectual property payments to the U.S. in 2019, up from $6.6 billion in 2016, and its courts imposed some record-breaking fines on IP infringement involving U.S. companies. But that rate of increase was slower than for its IP payments to the whole world, according to World Bank data, showing the payments to the U.S. were part of a general trend.

 

Washington was also not able to extract any significant commitments on reform of China’s state-owned enterprises, which were also cited as a justification for tariffs.

It’s now up to President-elect Biden to decide whether to keep up the trade war. In a recent interview, he said he wouldn’t remove the tariffs immediately and would instead review the phase one deal.

Compared with tariffs, an escalating conflict over technology is of more concern to China. Sanctions and export restrictions imposed by Washington have threatened the viability of leading technology companies such as Huawei Technologies Co. and microchip maker Semiconductor Manufacturing International Corp. That is an existential threat to Beijing’s plans for economic growth.

“If the U.S. continues to increase its technological blockade, China’s modernization towards the high-end of the global industrial chain will undoubtedly be affected,” two researchers at the official Communist Party school in the province of Jiangsu wrote in an article.

So far, the impact of U.S. actions has been to accelerate Beijing’s drive for technological self-sufficiency. The issue has rocketed up the Communist Party’s agenda, symbolized by a statement last month that increasing “strategic scientific and technological strength” is the most important economic task.

©2021 Bloomberg L.P. Distributed by Tribune Content Agency, LLC