China syndromeA Selective Retreat from Trade with China Makes Sense for the United States
Behind the headlines and politics, a basic question remains: How much benefit is the U.S. getting out of its trade relationship with China? As a scholar in international trade theory and policy, I believe that answer must be looked at through a wider lens than just economics – one that includes national security.
Trade tensions and mistrust are escalating between the U.S. and China. Soon after U.S. Secretary of State Mike Pompeo announced that China recommitted to its January trade deal obligations after a face-to-face meeting with Beijing’s top diplomat on June 17, he upbraided the country for using disinformation to drive a wedge between Europe and the U.S. President Trump, meanwhile, is attempting to use his tough stance with Beijing as a foreign policy selling point.
Behind the headlines and politics, a basic question remains: How much benefit is the U.S. getting out of its trade relationship with China? As a scholar in international trade theory and policy, I believe that answer must be looked at through a wider lens than just economics – one that includes national security.
A Model Where Both Countries Benefit
Economists have long agreed that free international trade can benefit countries when it is based on the principle of comparative advantage. Popularized by the English economist David Ricardo, this means that countries should export goods they can make more efficiently and less expensively to other countries, and import goods the other country can make more efficiently.
Free trade theory states that such trade, as opposed to trade that uses tariffs and quotas, makes nations better off. That’s because it creates overall benefits for countries. There may still be individual losers in certain industries, but overall, all nations are deemed winners.
It is, in theory, possible to take some of the winners’ gains in a nation and give it to that country’s losers, and still have some surplus left over. The “losers” are typically the industries that compete with imports and its workers.
The practical problem with this line of reasoning is that the U.S. typically either does not make compensatory payments to the losers from trade or, when it does, the payments are puny. Uncle Sam provides assistance to those who lose out from free trade via the Department of Labor’s Trade Adjustment Assistance program.
As long as workers displaced by international trade enroll in a job training program, the adjustment assistance provides relocation assistance, subsidized health insurance and extended unemployment benefits. However, the program has been severely criticized by workers themselves, even earning the nickname “burial insurance,” as in arriving just in time to bury the victims.
