By Josh Zumbrun and Bob Davis
WASHINGTON -- President Trump's trade war against China didn't
achieve the central objective of reversing a U.S. decline in
manufacturing, economic data show, despite tariffs on hundreds of
billions of dollars of Chinese goods to discourage imports.
The tariffs did succeed in reducing the trade deficit with China
in 2019, but the overall U.S. trade imbalance was bigger than ever
that year and has continued climbing, soaring to a record $84
billion in August as U.S. importers shifted to cheaper sources of
goods from Vietnam, Mexico and other countries. The trade deficit
with China also has risen amid the pandemic, and is back to where
it was at the start of the Trump administration.
Another goal -- reshoring of U.S. factory production -- hasn't
happened either. Job growth in manufacturing started to slow in
July 2018, and manufacturing production peaked in December
2018.
Mr. Trump's trade advisers nonetheless say the tariffs succeeded
in forcing China to agree to a phase one trade deal in January, in
which Beijing agreed to buy more U.S. goods, enforce intellectual
property protections, remove regulatory barriers to agricultural
trade and financial services and to not manipulate its
currency.
They also say the tariffs -- which remain on about $370 billion
in Chinese goods annually -- will over time force China to end
unfair practices and help rebuild the U.S. manufacturing base.
Tariffs "are having the effect of bringing manufacturing jobs
back to the U.S.," U.S. Trade Representative Robert Lighthizer said
in an interview, citing statistics that show a net gain of 400,000
U.S. manufacturing jobs from November 2016 until March 2020, when
the pandemic forced widespread factory closures.
However, about 75% of the increase in manufacturing jobs
occurred before the first tranche of tariffs took effect against
China in July 2018, when annual growth in manufacturing jobs peaked
and then began to decline. By early 2020, even before the pandemic
reached the U.S., manufacturing job growth had stalled out, and
factories shed workers in four of the six months through March.
An industry-by-industry analysis by the Federal Reserve showed
that tariffs did help boost employment by 0.3%, in industries
exposed to trade with China, by giving protection to some domestic
industries to cheaper Chinese imports.
But these gains were more than offset by higher costs of
importing Chinese parts, which cut manufacturing employment by
1.1%. Retaliatory tariffs imposed by China against U.S. exports,
the analysis found, reduced U.S. factory jobs by 0.7%.
Mr. Trump is one of a long line of U.S. presidents to use
tariffs to protect favored industries. President Obama put steep
tariffs on Chinese tires, President George W. Bush imposed tariffs
on steel and President Reagan hit Japanese televisions and
computers.
But Mr. Trump's enormous increase in tariffs on Chinese goods
represented a sharp departure in post-World War II economic
history. Since the war, the U.S. has led round after round of
global trade talks aimed at reducing tariffs. No longer.
"This is the biggest use of tariffs since the Smoot-Hawley
tariffs" during the Great Depression, said Chad Bown, a trade
expert at the Peterson Institute for International Economics. "The
economic impact is going to take years to play out."
Mr. Trump has called himself a "tariff man" and said businesses
that complain about the impact of tariffs should simply build
factories in the U.S.
"I happen to be a tariff person because I'm a smart person, OK?"
Mr. Trump said in an interview with The Wall Street Journal in
November 2018 as the trade war intensified. "We have been ripped
off so badly by people coming in and stealing our wealth."
The tariff strategy, however, played out differently for
manufacturers depending on their individual circumstances. That is
shown by the experience of two Midwestern manufacturers, Atlas Tool
Works Inc. and Hemlock Semiconductor Operations.
Illinois-based Atlas said sales of its brackets, gears and
conveyor belts used in manufacturing rose 18% in the year after Mr.
Trump placed tariffs on similar parts from China. But Hemlock, a
Michigan company that makes polysilicon used in computer chips and
solar cells, is still struggling.
The phase one trade deal signed by Washington and Beijing in
January specified that China would buy more U.S. solar-grade
polysilicon, Hemlock's main product. But China never lifted its
tariffs on polysilicon -- just as the U.S. kept tariffs on most
Chinese imports -- and Hemlock didn't register any gains.
"We've reached out to Chinese companies, 'Are you interested in
buying polysilicone?'" said Phil Dembowski, Hemlock's chief
commercial officer. "But they all tell us the same thing -- no
mechanism to import it without paying duties. They'd like to, but
they can't afford that tariff."
Atlas, by comparison, was able to benefit from the tariffs
because it shuns Chinese suppliers -- a point of pride for the
family-owned business founded in 1918.
The company says it was forced to close a lucrative business
supplying telecom-gear makers in the early 2000s because of Chinese
competition. Atlas refocused on fabrication equipment for the
defense and health-care industries, but that eventually came under
assault from cut-rate Chinese competition too, according to owner
Zach Motti.
When Mr. Trump approved tariffs in 2018, sales boomed. Atlas had
no Chinese suppliers, so its costs remained stable. The company,
which had about 100 employees before tariffs, added about two dozen
new positions.
"We saw the uptick right away when the tariffs hit," Mr. Motti
said.
But for companies including Hemlock, the tariffs backfired.
Rather than pressuring Beijing to open markets, China responded
with retaliatory tariffs that made Hemlock's products more
expensive there. And U.S. companies that buy parts from China
suddenly faced higher costs.
U.S. trade negotiators recognized that many U.S. companies, like
Hemlock, were dependent on Chinese supply chains, and sought to get
China to agree to pare back its industrial subsidies. But the
U.S.-China trade deal signed Jan. 15 failed to achieve that goal,
which was put off for future talks that have yet to
materialize.
Mr. Trump and his opponent, former Vice President Joe Biden,
have tangled over whether the president's trade and tariff policies
have brought back factory jobs. "They gave up on manufacturing,"
the president said of Messrs. Biden and Obama in the first
presidential debate.
Mr. Biden was equally dismissive of the Trump record during the
session, saying that "manufacturing went into the hole" even before
the pandemic.
Even so, Mr. Biden's top advisers don't commit to rolling back
the Trump tariffs on China. Rather, they say the vice president
would consult with allies on what to do about the levies. "Tariffs
would be among the tools we would consider in an allied approach,"
said senior Biden adviser Jake Sullivan.
Derek Scissors, a resident scholar at the conservative American
Enterprise Institute, initially supported the Trump
administration's approach to China, but now says the effort largely
failed to achieve its objectives.
"There are reasons to apply tariffs, there are reasons the
bilateral deficit can matter, but it's not the big payoff of
manufacturing jobs," Mr. Scissors said.
Mark Bassett, the CEO of Hemlock, was enthused to see the Trump
administration's efforts to level the playing field in the solar
industry. But he came to believe more fundamental changes were
needed for his company and others that compete against Chinese
rivals who are subsidized by Beijing.
"You need to take a look at things a little more holistically,
rather than a whack-a-mole methodology," Mr. Bassett said,
comparing tariffs to the arcade game in which targets keep popping
up.
Chinese companies that make solar panels bought $1 billion of
American polysilicone, like Hemlock's, in 2010. Anticipating
continued strong sales to China, Hemlock spent more than $1 billion
to build a new factory in Clarksville, Tenn., that was completed in
2012.
But China had plans of its own. Solar was specifically
identified as a strategic industry for Chinese dominance in "Made
in China 2025," the country's national plan to dominate high-tech
manufacturing. That plan included making solar-grade polysilicon --
turning China into a competitor to Hemlock instead of a
customer.
Solar-grade polysilicon exports to China had shriveled to $107
million by 2018. The plant in Clarksville never operated, and was
closed in 2014.
"It's the classic Chinese industrial story," said Mr. Bassett.
"Continued subsidization, no requirements to deliver a return on
investment, no enforcement of environmental or safety standards. An
artificially low price that drives everyone else out of
business."
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com and Bob Davis at
bob.davis@wsj.com
(END) Dow Jones Newswires
October 25, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.