The Trump tariff fallacy

The general economic lull in the United States that existed before the last election, which helped give Trump the support base he needed to win the presidency, maybe exacerbated by any tariff hikes. This will hurt the people who had hope in Trump and elected him.

The problem isn't China. Trump didn't cause it either. He inherited the problem from successive presidential administrations. The problem was caused by the corporations which abandoned US production, and workers who were also their customers, lured by the promise of lower costs, higher profits and entry into the Chinese market.

Trump was elected to save and create jobs. To his constituency, 'make America great again' is about reacquiring traditional manufacturing jobs. However, corporations are blocked from returning from manufacturing offshore because of the high profits they are making and higher production costs they would incur if the company returned to US production. The levels of profits the corporations now enjoy can't be made manufacturing in the United States.

Bringing back the corporations

Trump is calling on US corporations to leave China and comeback to the United States. He does have executive powers to force them, but this would be politically untenable. Working through a multi-layered constitutional democracy such as the United States would almost be impossible to garner strong and committed bi-partisan support to bring the corporations back.

Tariffs appear as the easy alternative.

Even if US corporations returned, the financial costs would be high. Companies would have to rebuild manufacturing facilities, recreate supply networks where local suppliers may no longer exist, and regenerate the community environments to house their workforce.

This would be one of the most ambitious projects the United States has engaged in, something along the mammoth scale of China's Belt and Road Initiative. Extensive city re-planning would be necessary. Infrastructure built. Communities re-nurtured. The US Government would most certainly have to adopt a regime of incentives something akin to what South East Asian Governments are giving investors, something unprecedented in the US. This would most likely need to be accompanied with a tax scheme where companies manufacturing in the US would pay a lower tax than companies importing their products to factor in differential labor costs.

Has the horse already bolted?

This is the reality the United States must now live with. Now the US must learn how to accommodate China diplomatically and economically, completely outside the military paradigm. Unlike the Cold War, which was about military supremacy, this one is about trade.

China and the US, economic relations with China must be based on the reality of mutual co-existence and avenues of cooperation. This would be a complete reversal in US policy thinking.

A so-called trade war with a nation that the US has heavy investments in is nonsensical. There is the potential thatUS firms could be hurt in China. The interdependency between the Chinese and US economies needs to be recognized and reflected in policy.

US foreign policy over the first 12 months of the upcoming Trump presidency looks like being trade based. An American envoy may be calling of Asian states in the new year, looking for trade concessions to rebalance what Trump sees is a problem.