President Donald Trump’s misguided threat to impose steep tariffs on Chinese exports to the U. S. would inflict harm on American consumers. To understand why, take a close look at his iPhone.
President Donald Trump’s threat to impose steep tariffs on Chinese exports to the U. S. would inflict a lot more harm on American consumers than it would on China.
To see why, you have to understand how Trump’s policy fundamentally misreads the reason the U. S. runs a trade deficit in the first place. The iPhone is a good example, with parts coming from many trading partners, not just China.
Last month, Trump promised to impose steep tariffs on $50 billion worth of Chinese goods entering the U. S. unless Beijing engineered a $200 billion reduction in its trade surplus with the U. S. by 2020. On Tuesday, Trump raised his tariff threat by another $200 billion on Chinese goods yet to be determined.
«Last year, we lost $500 billion on trade with China,» Trump said, erroneously, at a March 23 news conference. «We can’t let that happen.»
To begin with, Trump’s math is off — by more than $100 billion.
A country’s trade balance is nothing more or less than the difference between the value of everything it imports from a trade partner and everything it exports back to that country. A trade deficit occurs when the value of imports is greater than the value of exports, in terms of both goods and services.
Last year, the U. S. imported roughly $505 billion in Chinese goods and shipped about $130 billion back, a difference of about $375 billion.
But even that number masks the true story of who gets the better deal from U. S. China trade.
For one thing, unlike Trump’s portrayal, a trade deficit is not the same as a one-way transfer of funds from one country to another. Some $70 billion of the U. S. trade deficit with China comes from shipments of cellphones, for example. But in return for that $70 billion, American companies and consumers came away with $70 billion worth of cellphones.
Those cellphones, in turn, helped raise the productivity of American workers, including those in jobs that earn much higher wages than the Chinese workers who assembled their phones.
And that $70 billion is not an accurate measure of the value China added to the cellphones it shipped to the U. S. That’s because the accounting used in the «official» trade statistics hasn’t kept up with the growth of global supply chains, which source parts and raw materials from multiple countries to make a single product.
