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Do we really need a trade war with China?

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Kaimay Yuen Terry
For months I have been reading news headlines streaming into my cellphone or in print that our president is waging a trade war with China. Pundits first said it’s not serious, it will get resolved, and now they say it is serious. The most recent article that I read in The Economist described two countries entering a Cold-War-era-like relationship.

How did a country that for decades has been supplying us with a multitude of quality consumer goods, filling orders from American companies like Target and Best Buy, suddenly become a pariah for our current administration? How did the millions of Chinese workers who left their villages to toil in the huge city factories to satisfy our appetites for goods become the invisible and faceless foes of America? Have we forgotten our delights with the unbelievably low and lower prices for our purchases? For investors, many have built their nice retirement funds from owning shares of companies that benefited from globalization, of which China has played a crucial part.

I found some answers to these questions at an October China Town Hall event organized by the National Committee on U.S. China Relations (NCUSCR) and sponsored locally by the University of Minnesota China Center and Global Minnesota. NCUSCR, a nonprofit, held its annual national webcast forum in 100 venues, across 44 states and also simultaneously in three Chinese cities. Former Secretary of State Condoleezza Rice was interviewed by Stephen Orlins, president of NCUSCR. The questions and answers reflected mainstream media stories and was conducted in style and eloquence.

Rice stressed the need for greater intellectual property protection, the need for China to further open up its markets, e.g. financial services, and she acknowledged her strong and continued support for student exchanges. Rice herself was a past beneficiary of NCUSCR’s support for her first visit to China.

What followed the streamed Rice interview was an eye- and mind-opening live talk by Andy Rothman, a seasoned investment strategist at Matthews Asia. Rothman had a long U.S. diplomatic career with a focus in Asia. He offered a perspective of the U.S. China “trade war” that differed vastly from that of the Trump administration.

Rothman’s first assertion was that there is no need for a trade war.

The U.S. economy is strong, with its manufacturing long recovered from the recession of 2008. He reminded us that the manufacturing share of total U.S. employment reached a peak in the 1950s, long before China joined the World Trade Organization (WTO), and that manufacturing as a portion of the U.S. economy has been steadily shrinking since the 1950s. He attributed much of the cause for this change to U.S. manufacturers becoming more efficient, via technological advances such as automation, thus needing fewer workers to produce the same amount of goods. He further pointed out that in any society a wealthier population consumes more services than goods.

Many U.S. firms ‘winning’ in China

He then pointed out that many American firms have been and are “winning” in China. Rothman gave statistics showing that since China’s inclusion in WTO in 2001, U.S. exports to China haven risen by 580 percent while only increasing by 100 percent to the rest of the world. He cited examples of General Motors, which now sells more cars in China (4 million) than in the U.S., and Nike, whose sales to China contributed 16 percent of its global revenue. In short, more Chinese have become consumers and have growing spending power, so why do we want to jeopardize this market?

Rothman gave equally credible arguments about the harm to our American economy and American workers in a trade war. He gave the example of Boeing, our largest exporter, which employs more than 50,000 factory workers and 45,000 engineers across 50 states plus supporting 1.3 million workers at parts suppliers. Loss of Boeing sales to Airbus for the China market will have a widespread and long-term impact. Apple products, the darling of consumer desire in China, contain parts from the U.S. reflecting the labor of 2 million U.S. workers. Change of Chinese consumer preferences will not only hurt Apple’s profits, but the incomes of Apple employees and the stock portfolios of countless U.S. investors.

Lastly for Midwesterners, Rothman reinforced our concerns for our own soybean farmers who are now in the crosshairs of reciprocal tariffs. Nowhere else can our farmers find a market large enough to absorb the surplus soybean crops year after year that we have grown for animal feed in China.

Rothman’s final argument against this trade war was helping us to understand that China is no longer an export-dependent country for its economy. Net export (export minus import) accounts for only 2 percent of China’s gross domestic product, and China’s exports to the U.S. accounted for only 19 percent of its total exports. So what is the point?

Economist Stiglitz’s point of view

Some answers come from Nobel Prize-winning economist Joseph Stiglitz, interviewed in the latest Barron’s. Without using economic jargon, he claimed that the trade imbalance that has troubled our administration so much and led it to accuse China of cheating in its trade practices was absurd. Stiglitz explained, “When we save less than we invest, there will be a trade deficit. Because of the very badly structured tax bill of December 2017, combined with the January expenditure bill, the fiscal deficit and trade deficit are going way up.”

China has moved 700 million people out of poverty in just a few decades. Stiglitz considered this as “one of the most important global events in the history of mankind.” The general fallacy was that we were told China’s growth and development was at our expense. “But isn’t it good to have more people with income to want to buy our goods?” he asked.

As midterm election nears, these voices seem to be from the wilderness as we are drowning in the torrent of negative political advertisements or tweets. There have been few meaningful debates in Congress on our president’s trade policies and their potential seismic consequences affecting the relations between the two largest world economies. Media pundits’ coverage is unsatisfactory.

It is time for us in Minnesota to rise above the din and let our true north be our guide. Some questions for us to contemplate:

Is the world not big enough for us to share?

Is it not reasonable for a country to aspire to advance technologically after it has successfully industrialized?

Can we not find compassionate ways through our own domestic policies to help those who are left behind in a fast-changing world?

Kaimay Yuen Terry is a board member of Global Minnesota, and an advisory council member of University of Minnesota China Center. The is a resident of Wayzata. The author’s opinion does not represent views of the organizations.

Comments (2)

  1. Submitted by joe smith on 10/27/2018 - 10:33 am.

    No, we do not need a trade war with China. We need a fair trading policy where the Chinese markets are open to USA products with the same ease that Chinese products flow to the USA. Allowing a one sided agreement that has 100’s of billions of dollars flowing one way to China, is not sustainable.
    We do not need a trade war with China, but it might be our only weapon available to even out our trade with them.

  2. Submitted by Bob Barnes on 10/31/2018 - 10:34 pm.

    What we need to do is shut off all trade with China. Let them implode into anarchy. They attack us via cyber attacks, they steal our IP, they sell us the cheapest junk in the world , they put tariffs on our goods coming in over there, they are some of the worst offenders for pollution, labor practices etc.

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