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January
20
2020

Remarks on the US/China “Trade Deal”
Paul Craig Roberts

The first thing to understand is that it is not a trade deal.  It is Trump backing off his tariffs when he discovered that the tarrifs fall on US goods and American consumers, not on China.  Trump is covering his retraction by calling it a trade deal.  China’s part of the deal is to agree to purchase the US goods that it already intended to purchase.

The purpose of tariffs is to protect domestic producers from foreign competition by raising the price of imported goods.  What Trump, his administration, and the financial press did not understand is that at least half of the US trade deficit with China is the offshored goods produced in China by such corporations as Apple, Nike, and Levi.  The offshored production of US global corporations counts as imports when they are brought into the US to be sold to Americans.  Thus, the cost of the tariffs were falling on US corporations and US consumers.

Tariffs are not an effective way to bring offshored US manufacturing home.  If Trump or any US government wants to bring US manufacturing back to the US from its offshored locations, the way to achieve this result is to change the way the US taxes corporations.  The rule would be: If a US corporation produces in the US with US labor for US markets, the firm’s profits are taxed at a low rate.  If the corporation produces products for the US market abroad with foreign labor, the tax rate will be high enough to more than wipe out the labor cost savings.

As I have emphasized for years, the offshoring of US manufacturing has inflicted massive external costs on the United States. Middle class jobs have been lost, careers ended, living standards of former US manufacturing workers and families have dropped. The tax base of cities and states has shrunk, causing cutbacks in public services and undermining municipal and state pension funds.  You can add to this list.  These costs are the true cost of the increased profits from the lower foreign labor and compliance costs.  A relatively few executives and shareholders benefitted at the expense of a vast number of Americans.

This is the problem that needs to be addressed and corrected.


Hon. Paul Craig Roberts is the John M. Olin Fellow at the Institute for Political Economy, Senior Research Fellow at the Hoover Institution, Stanford University, and Research Fellow at the Independent Institute. A former editor and columnist for The Wall Street Journal and columnist for Business Week and the Scripps Howard News Service, he is a nationally syndicated columnist for Creators Syndicate in Los Angeles and a columnist for Investor's Business Daily. In 1992 he received the Warren Brookes Award for Excellence in Journalism. In 1993 the Forbes Media Guide ranked him as one of the top seven journalists.

He was Distinguished Fellow at the Cato Institute from 1993 to 1996. From 1982 through 1993, he held the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies. During 1981-82 he served as Assistant Secretary of the Treasury for Economic Policy. President Reagan and Treasury Secretary Regan credited him with a major role in the Economic Recovery Tax Act of 1981, and he was awarded the Treasury Department's Meritorious Service Award for "his outstanding contributions to the formulation of United States economic policy." From 1975 to 1978, Dr. Roberts served on the congressional staff where he drafted the Kemp-Roth bill and played a leading role in developing bipartisan support for a supply-side economic policy.

In 1987 the French government recognized him as "the artisan of a renewal in economic science and policy after half a century of state interventionism" and inducted him into the Legion of Honor.

Dr. Roberts' latest books are The Tyranny of Good Intentions, co-authored with IPE Fellow Lawrence Stratton, and published by Prima Publishing in May 2000, and Chile: Two Visions - The Allende-Pinochet Era, co-authored with IPE Fellow Karen Araujo, and published in Spanish by Universidad Nacional Andres Bello in Santiago, Chile, in November 2000. The Capitalist Revolution in Latin America, co-authored with IPE Fellow Karen LaFollette Araujo, was published by Oxford University Press in 1997. A Spanish language edition was published by Oxford in 1999. The New Colorline: How Quotas and Privilege Destroy Democracy, co-authored with Lawrence Stratton, was published by Regnery in 1995. A paperback edition was published in 1997. Meltdown: Inside the Soviet Economy, co-authored with Karen LaFollette, was published by the Cato Institute in 1990. Harvard University Press published his book, The Supply-Side Revolution, in 1984. Widely reviewed and favorably received, the book was praised by Forbes as "a timely masterpiece that will have real impact on economic thinking in the years ahead." Dr. Roberts is the author of Alienation and the Soviet Economy, published in 1971 and republished in 1990. He is the author of Marx's Theory of Exchange, Alienation and Crisis, published in 1973 and republished in 1983. A Spanish language edition was published in 1974.

Dr. Roberts has held numerous academic appointments. He has contributed chapters to numerous books and has published many articles in journals of scholarship, including the Journal of Political Economy, Oxford Economic Papers, Journal of Law and Economics, Studies in Banking and Finance, Journal of Monetary Economics, Public Finance Quarterly, Public Choice, Classica et Mediaevalia, Ethics, Slavic Review, Soviet Studies, Rivista de Political Economica, and Zeitschrift fur Wirtschafspolitik. He has entries in the McGraw-Hill Encyclopedia of Economics and the New Palgrave Dictionary of Money and Finance. He has contributed to Commentary, The Public Interest, The National Interest, Harper's, the New York Times, The Washington Post, The Los Angeles Times, Fortune, London Times, The Financial Times, TLS, The Spectator, Il Sole 24 Ore, Le Figaro, Liberation, and the Nihon Keizai Shimbun. He has testified before committees of Congress on 30 occasions.

Dr. Roberts was educated at the Georgia Institute of Technology (B.S.), the University of Virginia (Ph.D.), the University of California at Berkeley and Oxford University where he was a member of Merton College.

He is listed in Who's Who in America, Who's Who in the World, The Dictionary of International Biography, Outstanding People of the Twentieth Century, and 1000 Leaders of World Influence. His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at: [email protected]

 

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