Jake's View

Donald Trump has got it all wrong when it comes to imposing tariffs on Chinese goods

The disparity of wages between US workers and Chinese counterparts doesn’t add up to a case for tariffs on Chinese imports into the US

PUBLISHED : Monday, 18 January, 2016, 6:18pm
UPDATED : Thursday, 10 November, 2016, 11:01am

United State’s Republican presidential hopeful Donald Trump called for higher tariffs on Chinese goods if China does not stop engaging in practises to devalue their currency.

SCMP, January 16

I actually think Donald Trump is not all bad. He wants to pull the United States out of the Middle East War it started and it’s my belief that jingoist military adventurism is now the most important issue in US politics.

But I agree that the world might not have such a case of the heebie-jeebies about the present line-up of US presidential candidates if he were to pull his mouth out of all other things foreign.

The argument is, of course, that a weaker yuan means that manufacturing workers in China are paid less in US dollar terms, which means their products can be priced more cheaply on the shelves of US department stores, which means they have competitive edge over their American counterparts, which is cheating.

How is this false? Let me count the ways:

• Wages in China account for only a small proportion of the retail price of China made goods sold in the US, perhaps little more than 10 per cent. I know of cases where it is much less. Almost all the rest is US dollar cost, just as in the US.

• Over the 10 years to June last year the yuan rose by 26 per cent against the US dollar. Under the relentless pressure of a strong dollar and massive capital outflows from China it has in recent months weakened by about 7 per cent. Is it really true that so little and so recent forebodes the collapse of US industry?

• Walk down the aisles of any big box store in the US and you will find that all the toys, clothing and light consumer durables are made in China. All, I say. US industry no longer competes with China in the things China makes.

• Since mid-2014 US manufacturing producer prices have fallen much more steeply than prices of imports from China. Just who is gaining a competitive edge here?

All of this has long been true, of course, as well as long said and long ignored in the US at election time. Today, therefore I shall highlight two other trends of interest.

The first chart shows you the difference in growth over the last 20 years between average wages in China in US dollar terms and weekly production workers’ wages in the US.

Yes, the China wage starts at a much lower base and is still only a fraction of the average US wage. It is nonetheless a very fast rate of catch-up.

Wages, however, are not the only component of industrial success. Chinese textile workers made less than half of what their Indian counterparts earned 30 years ago. Now it is six times as much. Yet China’s export edge of Indian textiles is still growing.

The second chart shows you the great gift that Chinese workers have given US consumers. Over the last 20 years prices of consumer durables (i.e. made in China) have fallen by 16 per cent in the US while the rest of the consumer price index rose by 60 per cent.

What you should have said, Donald, is, “Thank you, China.”