We’re told tariffs on China are harming Americans, but it is helpful to understand who is being harmed. In all my conversations about the ill effects of tariffs – and what the recent testimony of 600 companies to USTR asserts – those most vociferously complaining are business owners. Yet it’s not the tariffs alone that are harming their businesses; it’s also the uncertainty surrounding whether there will be a deal.
Since 2002, the Chinese Communist Party has used WTO membership and the certainty of low tariffs to co-opt American business owners, enabling the creation of large margins by tapping into an economy that allows for poor labor laws, poor environmental regulation, and subsidies. Business owners have been fantastically rewarded for relocating manufacturing to China, while for the American worker this meant the closing of 73,000 factories and the loss of 3.4 million manufacturing jobs.
Today, investment never touches American shores so long as producers believe they can go elsewhere and take advantage of low labor protections and environmental standards, yet still sell in into the U.S. market with low tariffs.
We have been conditioned to believe those supply chains cannot be moved back to the US, because it would be too disruptive. Yet, that is exactly what happened when China was allowed into the WTO in 2002. American industry began a more than 20-year exodus of moving abroad to produce things. Today, we have a Chinese company making circuit boards for the F-35, because America no longer can manufacture microelectronics to the level we once could.
Prior to China’s entry into the WTO, no major company would invest heavily in China because the annual vote on most favored nation tariff protections created the same uncertainty prevalent in today’s trade war. Once China entered the WTO, the flood of foreign direct investment into China enabled the massive buildup of Chinese infrastructure, industrial base and the economy, to the point where it has surpassed the U.S. in size (using purchasing power parity).
Prior to China joining the WTO, a different constituency argued against the move — American workers. They lost because economic and social theory, as well as conventional wisdom, said free trade leads to wealth and wealth leads to democracy. Business owners became the new shepherds of democracy. All America had to do was step back, get rich and watch democracy flourish.
Instead totalitarianism flourished as the openness created opportunities for its globalized rebirth. While State Department officials and others roamed the globe seeking adherence to American standards that ensured no business could be profitable manufacturing at home, the Chinese Communist Party welcomed American businesses to do just the opposite. Thus, the world became more polluted and less free not because America gave up caring, but instead because of the partner and strategy we enlisted to make the world safe for democracy.
If you’ve lived in China as I have, then you would welcome a return to the U.S. where the air, water and land are clean. Yet, if you drove through American communities decimated by the offloading of productive capacity, you might wonder if the choices that allowed for the decline of democracy, made the world unsafe for human habitation as well.
While some American producers are relocating supply chains due to the ongoing trade war, they are not moving them to America because investment in America has not been a priority since the end of the Cold War. This — coupled with endless wars in the Middle East — has made the American nation weaker, while totalitarians have become stronger and the rest of the world more polluted.
If we truly want a cleaner planet then we should start at home. Bring back the supply chains and build products according to standards that make sense, with incentives that make investments profitable. We can do it under U.S. rules, which ensure it is done according to environmental principles that are sound, and with hard-won worker protections.
The investment environment for manufacturing in the U.S. is the best it has been in decades — some of the lowest energy costs and corporate tax ratesin the OECD, massive deregulation, increasing automation, and now trade protections. Once American producers are producing at home, the economy will grow, and communities affected by the 73,000 eliminated factories can begin to heal.
The CCP can never agree to fair and reciprocal trade. Their system has been designed to keep people employed even when their industries are over capacity, and that stability keeps the party in power.
It’s long past time to rebuild America. The conditions are in place to have a great resurgence in manufacturing. The communities that have been devastated are begging for it. This path doesn’t need a strong-arm totalitarian government. It merely needs the president to make tariffs on China permanent, ensure manufacturing does not go elsewhere in search of lax rules — then get out of the way. American entrepreneurs will do the rest, as they always have.