The Trump Administration’s Secretary of Commerce, Wilbur Ross, has an op-ed in today’s Wall Street Journal in which he articulates something I wish were more generally understood. Our major trading partners are pretty darned two-faced:
Our major trading partners issue frequent statements regarding their own free-trade bona fides, but do they practice what they preach? Or are they protectionists dressed in free-market clothing?
When it comes to trade in goods, our deficits with China and the EU are $347 billion and $146.8 billion, respectively. As the nearby chart shows, China’s tariffs are higher than those of the U.S. in 20 of the 22 major categories of goods. Europe imposes higher tariffs than the U.S. in 17 of 22 categories, though the chart does show that the EU and China are much different regarding tariff rates.
The EU charges a 10% tariff on imported American cars, while the U.S. imposes only a 2.5% tariff on imported European cars. Today Europe exports 1.14 million automobiles to the U.S., nearly four times as many as the U.S. exports to Europe. China, which is the world’s largest automobile market, has a 25% tariff on imported vehicles and imposes even higher tariffs on luxury vehicles.
In addition to tariffs, both China and Europe enforce formidable nontariff trade barriers against imports. Examples include onerous and opaque procedures for registering and gaining certification for imports; unscientific sanitary rules, especially with regard to agricultural goods; requirements that companies build local factories; and forced technology transfers. The list goes on.
Both China and Europe also bankroll their exports through grants, low-cost loans, energy subsidies, special value-added tax refunds, and below-market real-estate sales and leases, among other means. Comparable levels of government support do not exist in the U.S. If these countries really are free traders, why do they have such formidable tariff and nontariff barriers?
It should be noted that a lot of the alleged labor cost advantages to be gained from manufacturing in China or hiring programmers or support center workers in India are artifacts of our labor, safety, and environmental standards.
The reality of trade is that all of our major trading partners are mercantilists and we’re crony capitalists. The United States as a whole may not benefit from our lop-sided excuse for free trade but a few companies and their managers benefit mightily.
He also touches on another point. China was admitted to the World Trade Organization about 20 years ago with the understanding that it would put certain reforms into its banking system into place. It hasn’t done it and it shows no intention of doing it. As this news report highlights, its major banks are being run like enormous family businesses and criminal family businesses at that.
“The reality of trade is that all of our major trading partners are mercantilists and we’re crony capitalists.”
Beautifully succinct.