James D. Schultz is a CNN legal commentator and chair of the Government and Regulatory practice at Philadelphia-based law firm Cozen O'Connor. He served as senior associate counsel and special assistant to the president in the Office of White House Counsel during the Trump administration. The opinions expressed in this commentary are his own.
For years, and through multiple presidential administrations — Clinton, Bush and Obama — the United States has naively looked the other way while China cheated its way to an unfair advantage in the international trade market. It took a long time to get to this point, and it's not going to turn around overnight. But with President Donald Trump's long-term approach to trade policy, the United States is in a good position to make up for the misguided policies of the past, which resulted in millions of lost jobs and thousands of shuttered factories.
A bad day or a bad week on Wall Street is not an indication that Trump's policy is failing. Market volatility is neither a surprise nor a reason to head for the lifeboats. The markets are going to react and fluctuate as the United States and China go back and forth in trade negotiations.
As the US Treasury Department reported in May, there has been, and is, an "exceptionally large and widening" bilateral trade imbalance between China and the United States."
It's not as though China hasn't had a chance to change its ways. It simply chose not to by, among other things, willfully ignoring its G20 commitment to fair trade, dumping products below cost into US markets and stealing intellectual property.
China has also recently been labeled a currency manipulator by the Treasury Department. The Chinese government, not the free market, sets its currency's value against the dollar. When China allows its currency to fall in an attempt to boost its own exporters, American companies and workers pay the price.
Only by applying pressure will China be motivated to change its destructive trade habits. The United States will apply an additional tariff of 10% on approximately $300 billion of Chinese goods — some effective September 1 and some effective December 15. This puts the squeeze right where it needs to be — on China. The delay in tariffs on some Chinese goods from September to December, which the president announced Tuesday, is strategic and not a retreat on tariffs. It was done to avoid impacting the holiday season because tariffs will not apply to goods that have been ordered. Thus, American retailers and consumers will likely not get stuck with the extra cost for those goods tariffed in December.
Something had to be done to end China's unfair practices, and rather than capitulate to the predictions of recession and calamity, we need to stay the course and continue to add tariffs to Chinese goods. We as a nation simply cannot allow China to continue to have its way with our economy.
Of course, trade wars don't come without risk or impact, and American farmers are bearing the brunt of the fallout. In what was clearly a retaliatory move, China and other countries placed stifling tariffs on American agricultural products. Trump stepped in to assist with $14.5 billion in subsidies that go directly to farmers to make up for the loss of income, the US Department of Agriculture announced in May.
The good news is that the USDA predicts a 10% increase in farm profit in 2019 to $69.4 billion after a 16% dip in 2018, according to the USDA Economic Research Service.
It's important to view the current trade war within the context of the Trump administration's broader trade policy.
For example, if we focus only on farming, the president negotiated the US-Mexico-Canada Trade Agreement which, if Congress does its job, will provide farmers a fairer market to export their goods.
Perhaps this is one of the reasons why Trump's support among farmers remains strong, despite the trade war's impact on their bottom line. According to a recent survey by the Purdue Center for Commercial Agriculture, 78% of farmers said they believe the trade war will ultimately benefit US agriculture.
China appears ready for a long fight, but there are indications it is already feeling the strain. Tech companies — at least 50 to date — are in the process of moving significant portions of their manufacturing operations out of China and back to other countries in an effort to get out from under US tariffs.
It seems that our choice is clear: We stay in this for the long haul to ensure that American businesses can compete on a fair playing field, or we panic and continue to allow China to play with a corked bat.
The former is sound trade policy. The latter is bad for US business, prosperity and security.