Editorial | Despite his boasts, Trump is far from winning trade war
- Jobs and manufacturing are not returning to the United States; instead they are moving to South and Southeast Asia and Mexico
- Global growth is also a casualty because of the complexities of the world’s supply chains
The trade war against China has always been portrayed by United States President Donald Trump as a means to win back American industry and jobs. But while his tariffs have cut Chinese production, leading to factory closures, the return of manufacturing to his country’s shores has not gone as anticipated. Production has instead largely moved to cheaper labour markets in South and Southeast Asia and Mexico. Worse, his actions have hit economic output, leading to a lowering of US and global forecasts.
Winning would not seem the right word when the hundreds of billions of dollars of tariffs imposed on products from China and elsewhere by the US are being pointed to by economists as the reason for a downgrading of projected growth. US GDP has fallen to 2.1 per cent, down from 3.0 per cent in 2018, and growth for the year revised down to 2.5 per cent. The International Monetary Fund has said that global economic output next year could be reduced by as much as 0.5 per cent as a result of the penalties. Tariffs are causing higher prices, reducing consumers’ purchasing power and raising the cost of doing business and investment.
But the jobs Trump promised would return from China to the US as American companies brought production home are not materialising at the rates that were promised. Pro-Trump organisations such as the Coalition for a Prosperous America had claimed that across-the-board tariffs on all Chinese products would create 1 million US jobs over five years. As the trade war enters its second year, an average of 8,000 jobs have been created each month so far this year compared to 22,000 in 2018. Dozens of firms have relocated manufacturing operations from China to the US, but many others have moved to third countries, chief among them Vietnam, Indonesia, Cambodia, Bangladesh and Mexico.
The main bar to relocating to the US is the complexities of the world’s supply chains, particularly for the electronics industry. Tariffs affect costs as China is the world’s dominant producer of parts and accessories. Trump is counting on a trade war win and good US economic outlook for re-election in 2020. Far from being a winner, his strategy is proving counterproductive.