Trump’s Trade War Made the Pandemic Worse, and Nationalism Will Slow the Recovery

“For Trump, Navarro, and the other neo-nationalists increasingly setting policy for the post-2016 Republican Party, America’s modern problems mostly stem from goods and people coming across the country’s borders. If a problem can’t be blamed on immigration, it probably will get blamed on trade. Sometimes both. And the neo-nationalists weren’t about to let the coronavirus crisis go to waste.

“If we learn anything from this crisis,” Navarro said in April, “it should be: Never again should we have to depend on the rest of the world for essential medicines and countermeasures.”

This framing sounds like simple electoral politics. The Republican Party hopes to use the pandemic as an opportunity to double down on Trump’s “get tough on China” message that helped deliver key Rust Belt states in 2016.

But it’s more than that. Protectionism is now infecting the GOP to a degree that may be difficult to excise when the Trump era ends. Leading Republican lawmakers such as Sens. Josh Hawley (R–Mo.) and Marco Rubio (R–Fla.), who have been cheerleading Trump’s misguided tariff policy for years, are already positioning the coronavirus as an excuse to use federal power to reshape global trade. Even some formerly anti-Trump conservatives have been swayed into backing a nationalist vision of an America that must stand up to China or be swallowed by it. The COVID-19 outbreak has served only to confirm their fears.”

“The right’s increasingly vocal trade skeptics have taken advantage of a crisis to advocate a national industrial policy designed not only to decouple the United States from the global trading network but to put America on dangerous Cold War–like footing with one of its biggest trade partners. In doing so, they’re pushing ideas that will leave America less prepared for the next pandemic—and have already left us less able to handle this one.”

“Data from the World Trade Organization (WTO) show that over the past three years—both before and during Trump’s trade war with China—American consumers and businesses imported an average of $13.5 billion per year in medical supplies from China. That’s good enough to put China in fourth place, behind Switzerland ($15.5 billion annually, on average), Germany ($19.6 billion), and Ireland ($27.9 billion). America imported less than half the value of medical supplies from China in 2019 as it imported from Ireland, yet you probably didn’t hear many politicians and media personalities grandstanding about an overreliance on Irish manufacturing.

Meanwhile, an April report from the St. Louis Federal Reserve found that 70 percent of essential medical supplies consumed in the United States in 2018—including gloves, hand sanitizer, masks, and other key coronavirus-fighting stuff—were produced in the United States.”

“In February, the Food and Drug Administration (FDA) touched off a brief panic with a statement warning that the coronavirus outbreak in China could disrupt supply chains and lead to a shortage of drugs in America. The neo-nationalists pounced. In a February letter to the FDA, Hawley called America’s supposed dependence on Chinese-made drugs “inexcusable.” Part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the $2.3 trillion aid bill passed by Congress and signed by Trump in March, calls for the Department of Health and Human Services to develop “strategies to…encourage domestic manufacturing” of pharmaceuticals. By May, the Trump administration had approved a $350 million grant for a little-known Virginia company that promised to make drugs in the United States. “This is a great day for America,” Navarro proclaimed at a press conference.

In the rush to throw taxpayer money at the problem, the White House didn’t wait to see if a problem actually existed. On June 2, an FDA official testified that the agency had found no evidence of shortages of drugs caused by foreign governments restricting exports.

The truth is that America’s global supply lines for pharmaceutical drugs are actually quite diverse and resilient. There are roughly 2,000 manufacturing facilities around the world authorized by the FDA to produce active pharmaceutical ingredients for American consumers; only 230 of those are in China. Some 510 are in the United States, and 1,048 are in the rest of the world. The supply chains for the 370 drugs on the World Health Organization’s list of “essential medicines,” which includes “anesthetic, antibacterial, antidepressant, antiviral, cardiovascular, anti-diabetic, and gastrointestinal agents,” are similarly global: 21 percent of production facilities are in the United States, with 15 percent located in China and 64 percent located somewhere else.”

“As president, Trump has charted a go-it-alone strategy that emphasizes brute power over diplomatic finesse and that sees trade as a means by which other countries take advantage of the United States. Shortly after taking office in 2017, he yanked the United States out of the Trans-Pacific Partnership (TPP), a 12-nation trade agreement that was widely seen as the best way to put pressure on China to change some of its unacceptable behaviors. Instead of that multilateral effort, Trump sought a one-on-one confrontation that attempted to use tariffs to bully China into changing its ways. But his trade war has so far produced only meager results.

A “phase one” agreement signed in December 2019 did nothing to offset the huge costs to both economies of the tariffs the two countries have raised against one another. And the one big “win” secured by Trump—a promise that China would buy more American agricultural goods—seems unlikely to materialize in the face of a global recession.

That lone policy victory has been offset by numerous tangible losses. Since 2018, Trump has imposed tariffs on steel, aluminum, solar panels, and washing machines. Other tariffs have been aimed at roughly $300 billion in annual imports from China—covering everything from industrial equipment to children’s toys. All together, those tariffs have sucked an estimated $80 billion out of the U.S. economy, according to an estimate from the Tax Foundation, a nonpartisan tax policy think tank.

The tariffs have also imposed a human toll, one that became more obvious during the coronavirus outbreak.

“Any disruption to this critical supply chain erodes the health care industry’s ability to deliver the quality and cost management outcomes that are key policy objectives of the country,” Matt Rowan, president of the Health Industry Distributors Association, told the Office of the U.S. Trade Representative at a hearing back in August 2018.

At the time, the administration was weighing whether to include products like hand sanitizer, thermometers, oxygen concentrators, surgical gloves, and other types of medical-grade protective gear in the list of Chinese-made items to be subjected to new tariffs. Rowan emphasized that such supplies were “essential to protecting health care providers and their patients” and would remain “a critical component of our nation’s response to public health emergencies.”

The most instantly noticeable effect of Trump’s tariffs was to increase the price of goods imported from China, including medical equipment. Importers would have no choice but to “almost immediately” pass along those price increases to “hospitals, surgery centers, long-term care facilities, individual consumers, and government programs who purchase our products,” Lara Simmons, the president of Medline Industries, one of the largest medical supply companies in the United States, said during a June 2019 hearing on the tariffs.

But the Trump administration went ahead with the tariffs anyway. Imports of medical equipment from China fell after the tariffs were imposed, and imports from other parts of the world did not increase enough to make up the difference. It’s likely that hospitals and other health care providers were drawing down on existing inventories and hoping the trade war would end before they had to restock, says PIIE’s Bown, who has analyzed changing supply chain patterns in the last few years.

Trump finally lifted tariffs on medical equipment after the pandemic struck. Unfortunately, the administration did nothing to remove tariffs on chemicals used to manufacture disinfectants and antiseptics—items that will be in even higher demand as the economy reopens.

“The tariff is making it more difficult for companies to supply our nation’s essential workers with antiseptics and sanitizing products they need to protect themselves and others from COVID-19,” says Chris Jahn, president and CEO of the American Chemistry Council.

As the COVID-19 body count rose, Trump blamed China for making things worse by lying about the seriousness of the situation in December and January. The Communist regime in Beijing does deserve scorn for misleading the world about the pandemic’s true nature during the early days of the outbreak. But Trump is far too eager to deflect blame from how his own policies weakened America’s preparedness for the disease—and from how they might have made things much worse.”

“When the coronavirus outbreak hit, 3M sprang into action: The company doubled its global production to 100 million N95 masks per month, with 35 million of those made in America. In early April, the company’s CEO, Mike Roman, announced additional investments in mask-making capacity that will allow the company to produce 50 million N95s in the U.S. by June. For that remarkable mobilization of private capital and workforce productivity in the face of a deadly pandemic, 3M earned scorn from the economic nationalists in the White House.

When Trump signed the executive order implementing the Defense Production Act on April 3, he issued a blistering statement accusing “unscrupulous brokers, distributors, and other intermediaries” of operating like “wartime profiteers” simply for selling goods to buyers in other countries. “This conduct denies our country and our people the materials they need to win the war against the virus,” Trump said. Though the formal statement did not mention 3M specifically, Trump was less diplomatic on Twitter. “We hit 3M hard today,” he wrote in a follow-up tweet, as if the company’s Minnesota headquarters were a newly discovered terrorist training ground. “[They] will have a big price to pay!”

What was 3M’s alleged crime against America? Daring to sell face masks to distributors in Canada.

Set aside the belligerence of the president’s remarks, and there is an intuitive appeal to what he’s arguing: America is facing a pandemic, the thinking goes, and we can’t afford to let go of necessary supplies—not even to a close ally like Canada. It’s every nation for itself. Shouldn’t Americans have those masks instead?

But 3M didn’t stand for the president’s shaming. In a statement, the company noted that in order to meet Americans’ needs it was importing more masks than ever from its production facilities in China. “Ceasing all export of respirators produced in the United States would likely cause other countries to retaliate and do the same, as some have already done,” 3M said. “If that were to occur, the net number of respirators being made available to the United States would actually decrease.”

The knockout blow was 3M’s revelation that its American mask production facilities rely on a special wood pulp imported from—yes—Canada. It was an incident that perfectly captured the myopia of Trump’s anti-trade agenda.”

“in 2019, the U.S. imported more than $6 billion worth of PPE from around the world. If everyone followed the logic of “every country for itself,” America would end up with a net loss of equipment totaling nearly $5 billion. This year, the gap would probably be even larger, as production everywhere has increased in response to the pandemic.”

“As a practical matter, it is obvious that the United States would be less capable of responding to the immediate COVID-19 crisis if it stopped trading with the rest of the world. “Re-shoring to America does not imply supply chain resilience,” Bown says. “In a pandemic, excessive reliance on anyone (including yourself) is bad.””

“The Swiss medical supply outfit Hamilton Medical, for example, ramped up production by 50 percent in response to the outbreak in Europe. But then the company hit a snag. A key component of its ventilators came from Romania, a member of the European Union. Because the E.U. had imposed export restrictions on medical equipment and component parts, Hamilton Medical’s suppliers could no longer ship their wares to Switzerland, which is not an E.U. member.”

“”We shouldn’t have supply chains. We should have them all in the United States,” Trump said in that same May 14 interview, spelling it out for all to hear. This has never been solely about strategically countering a competitor’s rise or trying to shift supply chains away from a potentially hostile communist country. It’s about autarky, or at least about detaching America from the global trading systems that have helped lift much of the world out of poverty.

That’s not a recipe for prosperity at home. It makes no more sense than suggesting that Ohio would prosper if it decided tomorrow to stop trading with the other 49 states.”

“As the virus abates, the world will probably reconsider the approach it has taken toward China. If there are individual items for which America is heavily dependent on that country—particular medicines, perhaps—then manufacturers should look to further diversify supply chains. The federal government could encourage that behavior by lowering tariffs for imports from countries that compete with China to produce medical gear and pharmaceuticals. Pursuing nativist “buy American” policies or other forms of protectionism is neither the only solution nor the best one.

But the benefits of free trade and global economic integration created by decades of peaceful cooperation between nations should not be reconsidered. Taxing imports weakened America in advance of the pandemic. Raising barriers to trade made it more difficult to combat COVID-19 once the crisis hit. Nationalism will leave the world sicker and poorer.

Despite all that evidence to the contrary, Hawley, Trump, Navarro, and others seek to use the coronavirus as a cudgel to smash the system of global trade. They would replace it with an alternative that leaves America less free, less prosperous, and less capable of handling the next crisis.”

USMCA, Trump’s new NAFTA deal, explained in 600 words

“The United States Mexico Canada Agreement (USMCA) is an updated version of the nearly 25-year-old, trillion-dollar North American Free Trade Agreement (NAFTA). It includes major changes on cars and new policies on labor and environmental standards, intellectual property protections, and some digital trade provisions.”

Pompeo says U.S. ready to team up on China, but E.U. eyes a post-Trump world

“At the start of Trump’s presidency, EU leaders harbored hopes that the combative president would team up with them to address an array of issues with China, particularly related to trade disputes, on which Beijing had long refused to give any ground. Instead, Trump lumped the EU, and especially Germany, together with China as trade rivals who had taken advantage of the U.S., and even slapped punitive tariffs on EU steel and aluminum products that prompted swift retaliation from Brussels.

And even as Pompeo said he was excited about the new dialogue over China, he reiterated some areas of sharp disagreement between Washington and European allies, including over Trump’s surprise decision to reduce the U.S. military presence in Germany, which Trump has linked to his political disagreements with Berlin, including Germany’s slow increases in military spending and its continued support of the Nord Stream 2 gas pipeline project.

Pompeo in his speech tried to insist that Trump’s decision was based on a careful “strategic review” of military deployment levels and needs — a point that has been flatly refuted by current and former U.S. military officials.

Given the deep lack of trust, it seems unlikely that much progress will be made discussing China or anything else between now and the November election in the U.S. EU leaders at the moment are intensely focused on debating their new long-term budget and a European Commission proposal for an ambitious economic recovery fund.”

The Panic About China Cutting Off America’s COVID-19 Drug Supply Was Fake News

“While it is true that the majority of drugs Americans consume are imported, just 13 percent of the facilities certified by the FDA to make drugs for the United States are located in China. Last year, less than 1 percent of the finished drugs imported into the United States came from China—compared to 23 percent from Ireland.”

Josh Hawley Wants To Wreck America’s Economy To Own the Libs

“According to the Bureau of Labor Statistics, inflation-adjusted median weekly earnings for American workers have increased by 17 percent since 1995, when the WTO was founded. Meanwhile, American manufacturing has never been more valuable than it is now, as the country’s industrial production last year was 48 percent higher than in 1995, according to the Federal Reserve.”

“Withdrawing from the WTO would leave America cut off from the lower tariff rates that member nations grant to one another, effectively raising barriers to American exports and harming American manufacturing and farming. The global trade that’s possible because of America’s membership in the WTO boosts the U.S. economy by $2.1 trillion every year”

“the WTO did not simply materialize in the mid-1990s nor can it be easily replaced. It was the result of a decadeslong experiment in expanding the economic co-dependence of the world’s largest economies. That experiment increased prosperity and reduce major wars across the planet.”

South America Won the U.S.-China Trade War

“The easiest way to win a trade war? Don’t be one of the countries involved.

When the United States slapped tariffs on steel, aluminum, and billions of dollars of Chinese imports in the summer of 2018, China and other U.S. trading partners retaliated by targeting American agricultural exports. By the time a series of tit for tat increases in tariffs by the U.S. and China came to a halt with a December 2019 partial trade agreement—one that left most of the higher tariffs in place on both sides—the average foreign tariff for American farm goods had jumped from 8.3 to 26.8 percent

As a result, U.S. farm exports suffered. Carter and Steinbach calculate that U.S. farmers lost more than $15.6 billion in trade with countries that hiked tariffs in response to the Trump administration’s trade war. Soybeans, pork products, and grains were the products most affected.

Some of those losses were offset by trade with other nations—for example, when China stopped purchasing U.S.-grown soybeans, growers had to find other buyers for their products. That was the goal of a July 2018 deal struck by President Donald Trump and European Commission President Jean-Claude Juncker that the White House touted as a vehicle for sending more American soybeans to Europe.

As Reason noted at the time, Europe’s annual consumption of soybeans was less than 25 percent of China’s (and it already had access to tariff-free imports of U.S. soybeans), so “unless Juncker and Trump plan to start jamming soybeans down European throats, foie gras-style, there’s simply no way that Europe can consume enough soybeans to make up for the loss of China as an American export market.”

“Nearly two years later, Carter and Steinbach calculate that so-called “deflected trade” in agricultural goods boosted U.S. exports by about $1.2 billion during the trade war—leaving American farms only $14 billion in the red.”

“countries that the two researchers identify as “non-retaliatory countries”—that is, places that did not hike tariffs in response to U.S. tariffs on steel, aluminum, and other goods—gained more than $13.5 billion by increasing trade to places, like China, that took steps to reduce imports of U.S. farm goods.”

“soybean farmers are worried about how the trade war might permanently reshape the global soybean trade, to the detriment of American growers.”

“In March 2018, after Trump announced his intention to hike tariffs on steel and aluminum, Peter Navarro, the director of the White House’s National Trade Council, was asked about the potential consequences of retaliation aimed at American farm exports.

“I don’t believe any country in the world is going to retaliate,” he said. “They know they’re cheating us, and we’re just trying to stand up for ourselves.”

Navarro and Trump were wrong. American farmers have lost $14 billion because of their mistake.”

The Trump Administration Is Still Charging 25 Percent Tariffs on Disinfectants Used To Combat COVID-19

“President Donald Trump’s tariffs are crimping supply chains for chemicals used to manufacture disinfectants and cleaning products—items that are needed to combat COVID-19 and that will be in even higher demand as the economy reopens.

In a letter sent last week to U.S. Trade Representative Robert Lighthizer, the American Chemistry Council, an industry group, highlighted dozens of items that are subject to the Trump administration’s tariffs. The list sent to Lighthizer includes various chemical building blocks used to manufacture everything from soap to detergent, and surface cleaners to bleach.”

“The Trump administration took action in March to exempt medical equipment—including face masks and personal protective equipment (PPE)—from its tariff regime. But those exclusions did not apply to chemicals, like isopropyl alcohol and the dozens of other items on the council’s list that are not strictly defined as medical equipment but remain crucial to many products used by health care workers.

Trump’s tariffs are also affecting companies that need to purchase disinfectant wipes and other cleaning products. “According to the CDC guidelines…to prevent the spread of COVID-19 it recommends the use of EPA approved disinfectant wipes,” wrote Daniel Marquardt, principal owner of Hilo Industries LLC, a Virginia-based construction contractor, in a tariff exemption request filed last month. Hilo, like many other businesses across the country, needs to import tubs of disinfectant wipes that will be “used by our customers, employees, and their customers to enable them to work and patronize safely to help combat and control COVID-19,” Marquardt wrote.

But the tariff exemption process is opaque and slow—far from the ideal way to relieve the stress tariffs are causing. Sens. Tom Carper (D–Del.) and Pat Toomey (R–Pa.) have urged the Trump administration to move more quickly and issue more tariff exemptions in order to speed the response to the pandemic, but White House trade adviser Peter Navarro has laughed off those concerns as “fake news.””

“the tariffs are making it more expensive for American businesses to make those purchases, and therefore leaving them unable to purchase as much as they might otherwise choose. Much of the Trump administration’s trade war has been a real-life lesson in what economists call a “deadweight loss”—that is, a market inefficiency that creates losses for some participants but no gains for anyone else—but rarely does it appear this obvious.”

“The Trump administration has delayed tariff payments for three months as a way to boost liquidy for American importers, but that’s little help over the long term. Tariffs on products that are necessary components of disinfectants will only make it more difficult to achieve the reopening that Trump desperately seeks.”

China trade deficit shrinks as deficit with EU hits record high

“the deficit in exports versus imports from China shrank to $345.6 billion, down about 18 percent from a record high level of $419.5 billion in 2018.

But the U.S. trade deficit in manufactured goods with all countries was relatively unchanged in 2019 at close to $1.048 trillion because importers turned to other nations after Trump hit China with tariffs ranging from 10 percent to 25 percent.

Some of the beneficiaries of that shift included Mexico, Vietnam, Taiwan, South Korea, Japan and members of the EU.

The trade deficit with the EU hit a record $177.9 billion in 2019, while the gap with Mexico was a record $101.8 billion”

“tariffs Trump has imposed on approximately $370 billion worth of Chinese goods have increased costs for U.S. manufacturers”

“That helps explain both the slowdown in U.S. manufacturing output and slight decline in the manufactured goods trade deficit in 2019”

“The U.S. usually runs a surplus in agricultural trade. However, that surplus shrank to $23 billion in 2019, from $26.5 billion in 2018, at least partly because of the retaliation that China and other countries on American exports imposed in response to Trump’s tariffs.”

“One bright spot in the trade report is the sharp drop in the oil and gas trade deficit, which fell to $29 billion in 2019, from $69.5 billion in 2018, because of increased U.S. production and exports.

The oil and gas trade deficit reached as high as $317 billion in 2008, but has fallen steadily over the past decade because of new production techniques.”

“Trump still is mistaken to believe that the trade deficit is driven primarily by unfair foreign trade practices or bad trade deals, economists point out. Instead, other factors, such as the size of the U.S. budget deficit and the strength of the U.S. economy play a much bigger role in dictating trade flows.

“The irony is the stronger the U.S. economy is compared to our major trading partners, like the European Union and China, the more likely it is the trade deficit will go up because we will have stronger demand,” Griswold said. “The vast majority of economists would say that’s perfectly fine, but it does put this administration in an awkward spot.””

Trump’s Trade Deal With China Is Better Than a Trade War With China. But a $200 Billion Question Remains.

“As the “Phase One” name would indicate, this isn’t really an end to the trade war—in fact, nearly all the tariffs imposed by both the United States and China since hostilities commenced in July 2018 will remain in effect. Still, after 18 months of escalation and retaliation, the signing of a partial trade deal is a welcome sign that cooler heads have prevailed in Washington and Beijing.”

“the Trump administration does deserve credit for getting stronger protections for intellectual property into the deal, though it remains unclear whether those provisions can be meaningfully enforced. China has also agreed to make a series of changes to its financial services regulations that should allow competition from U.S. banks. That’s potentially more important than it might appear because it reduces the odds that the world’s two largest economies will fully de-couple from one another in the future.”

“the biggest part of the trade deal—a promise that China will boost its purchases of U.S. exports by $200 million over the next two years—should be viewed with skepticism.”

“Forcing China to buy more U.S. goods “directly contradicts the negotiating demand that China liberalize its economy and relax centralized control over trade and investment,””

“trade happens in an incredible diffuse way. It is the result of millions of individual decisions made by consumers and businesses every day. When “America” trades with “China,” what’s really happening is that some individual within America is trading with some individual inside China.
Or at least that’s how it should be. It’s true, of course, that China’s communist government retains considerable control over markets inside the country. But requiring China to buy more American goods isn’t the way to encourage more liberalization.”

“It’s also not clear whether China buying $200 billion of additional U.S. exports will actually add to overall American economic growth. It’s possible that China could simply buy up exports that would have otherwise gone to other countries. That outcome might reduce America’s trade deficit with China, but it wouldn’t boost U.S. exports overall or help grow American farms or manufacturing—yet another reason why Trump’s fixation on the trade deficit is counterproductive.”

“as long as Trump’s tariffs remain in place—there are no plans to lift them right now—they will continue to harm American manufacturing and be a drag on exports. Because tariffs raise the cost of manufacturing in the United States by taxing imported component parts, they have the added effect of making finished products more expensive, and thus less competitive on the global market. The Institute of International Finance estimates that the trade war has cost the U.S. about $40 billion in “lost exports.”

China agreeing to buy more farm goods and energy from the United States won’t fix those underlying issues. Unless the tariffs are lifted, Trump’s “Phase One” trade deal could end up helping China’s socialist regime tighten its grip on free markets while providing little to no relief for Americans.”

Steel Company CEO Says Everyone Else Should Have To Pay for Trump’s Tariffs, but Not Him

“Allegheny Technologies, which employs about 100 people, is the type of company that is especially vulnerable to Trump’s tariffs. It imports stainless steel slab from Indonesia and turns it into sheet metal, which it then sells to other manufacturers who incorporate it into car parts, kitchen appliances, and more.

Being in the middle of the supply chain is rough when you’re also in the middle of a trade war. Companies like Allegheny Technologies have to pay for Trump’s 25 percent tariffs on imported steel, and then have little choice but to pass on that cost increase to their customers. But, as Wetherbee laments, that makes it difficult for a company like his to compete against foreign manufacturers who can make and sell sheet metal without having to account for an extra 25 percent import tax.

Buying American doesn’t work, either, since U.S. steel is more expensive. One domestic supplier, Wetherbee writes, “quoted us a price for 60-inch slabs that was so high, the raw materials would have cost us more than we charge for the finished product.””