Donald Trump is a long-established critic of US-allies’ trade practices. In a Playboy interview in 1990 he revealed: “I think our country needs more ego, because it is being ripped off so badly by our so-called allies: i.e. Japan, West Germany, Saudi Arabia, South Korea.[…] Their products are better because they have so much subsidy”. Having become US president, Trump renewed his criticism of his trade partners’ unfair practices allegedly triggering the US goods trade deficit. With regard to steel and aluminium he also made clear that the cure he had in mind still applies: tariffs to fight the US deficits.
Finding and cure, however, face different caveats: First of all, with regards to the European Union the US did not face a current account deficit during the last 10 years. A former 100 billion US-Dollar current account deficit (in 2006) faded away and turned into a small surplus in favour of the US – amounting to 14 billion US-Dollar in 2017. In contrast, the US faces a significant and increasing current account deficit with China. After the financial crisis this US-China deficit spiked to over 300 billion US-Dollars and amounts to 358 billion US-Dollars in 2017. The US-China deficit makes up for more than 75 percent of the total US current account deficit.
And the rise of China did affect the US economy: Current research pins down the effects on the US labour market due to import competition from China after its WTO entry in 2001. Of the 6 million jobs lost in the US manufacturing sector between 1999 and 2011, Acemoglu et al. (2016) attribute a job loss of one million to direct or indirect import competition from China – 2 to 2.4 million jobs in the entire economy. The US government currently tries to prevent a similar development in the future and introduced significant tariffs for imports from China for artificial intelligence related products and other goods that the Chinese government explicitly subsidises within their China 2025 strategy. The outcome of unilateral protectionist measures against state funded industrial politics is entirely unclear. Furthermore, the fact that China did comply to WTO ruling in the past questions the US measures without making use of the given multilateral institutions.
By and large, China did export cheap products into the US and crowded out employment. Nevertheless, this is not necessarily due to abusive and unfair practices from the Chinese side. The comparison with Germany reveals that economies in the past did have the chance to profit from access to new markets and value chains: Dauth et al. (2014) show that in Germany 400.000 new jobs were created on a net basis due to the rise of China and the opening of Eastern European markets. Also in Germany new import competition had geographically as well as sectoral heterogeneous effects on the labour market. However, a competitive and innovative economy in combination with extensive welfare state programs in place, in order to provide help and education to those negatively affected by globalization, has turned out to be a winning strategy.