For all these divergent industrial strategies to succeed in the end depends largely on whether sustained nation-building investment outstrips the duration of protective measures that ought to be only a temporary respite from asymmetrical conditions while they are rebalanced.
To the extent these decoupled initiatives do succeed, they will, paradoxically, come to be regarded not as the antithesis of global cooperation, but as the precondition for it. Only when the power centers of China, the U.S. and Europe are assuredly in control of their own destiny will they be secure enough to open up and cooperate on the global issues that impact them all equally.
Michael Strain at the Aspen Economic Strategy Institute:
- The 2018–2019 Tariffs Likely:Reduced Manufacturing Employment. Manufacturing employment has been on a downward trajectory since the end of World War II, with no significant changes observed following China’s entry into the WTO or the adoption of protectionist policies. Researchers looking at the effects of Trump’s 2018 tariffs have found that the protection from import competition those tariffs provided was outweighed by two effects: the increased price of intermediate goods and the retaliatory tariffs that other countries imposed on US goods. They found that industries more exposed to tariff increases experienced greater declines in employment. Beyond the manufacturing sector, counties with higher exposure to tariffs experienced higher unemployment rates.
- Post 2017 Protectionism Did Not Reduce the US Trade Deficit. Although reducing the trade deficit was a primary goal of the Trump administration, protectionist measures did not accomplish this goal. The current account deficit, which measures the balance on trade in goods and in services, along with income flows between domestic and foreign residents, rose from $85.5 billion when President Trump took office to $180 billion at the end of his term.
- Post-2017 Protectionism Did Not Reduce America’s Reliance on China. The extensive tariff regime established in 2017 did reduce the bilateral trade deficit in goods with China by 17.9 percent between 2017 and 2020. However, this deficit fell because Chinese manufacturers rerouted goods through other nations, such as Mexico and Vietnam, to evade US tariffs. Indeed, even as the bilateral trade deficit fell between 2017 and 2020, China’s “value added” to US domestic final demand (the amount Chinese firms contribute to goods purchased by US households, businesses, or governments) rose. In this way, protectionist policies did not reduce the economic linkages between China and the US.