Trump has lost the plot on China

In a typically belligerent State of the Union address, President TrumpDonald John TrumpJustice Department preparing for Mueller report as soon as next week: reports Smollett lawyers declare 'Empire' star innocent Pelosi asks members to support resolution against emergency declaration MORE took credit for the past decade of economic growth.

He also tied the ambitions of his administration to those that put a man on the moon and secured victory in World War II. Much of the speech also hewed close to his populist plank, including strong talk on immigration, border security and an upgraded military.

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The president also expressed his now familiar concern over “decades of calamitous trade” with China, generating predictable approval from millions of struggling U.S. workers, even if that didn’t go over so well with Congress.

There’s a real irony, however, in President Trump calling for tough action on China’s “unfair trade practices.” It’s certainly what he campaigned on, and it seems logical to urge action on intellectual property theft, for example. But the sad truth is that the president has essentially missed the boat on meaningful trade action against China.

That has left America’s manufacturers in the same old spot — fighting an uphill battle. It also misses a tremendous opportunity to actually create millions of good, high-wage manufacturing jobs, which would deliver direct benefits to alienated working-class voters responsible for his election victory. 

In the 2016 campaign, candidate Trump took dead aim at China’s perennial currency undervaluation. It’s a longstanding problem for America’s manufacturers since it has allowed China to keep selling goods in the U.S. market at artificially low prices.

In fact, the president actually vowed to designate Beijing as a currency manipulator early in his presidency. But since taking office, Donald Trump has never actually cited China or any other country on currency.

Instead, what the president has done is impose 10 percent tariffs on more than $200 million worth of Chinese imports. It’s a necessary step, given the egregious list of predatory practices — including hacking, espionage and cyber theft — documented in a lengthy trade investigation of China’s state-owned enterprises.

Here’s the problem, though. Since April 2018, Beijing has reduced the value of its currency by 10 percent against the dollar, and that has more than offset all of President Trump’s tariffs. As a result, the U.S. trade deficit with China keeps climbing.

In October,the trade deficit reached a stunning new monthly record of $43 billion. Overall, America’s annual trade deficit with Beijing is still running roughly 11 percent above 2017 — putting it on pace to clock an all-time high, when final 2018 figures are released next month.

There’s also the frustration of watching the president’s current negotiations with Beijing. It sounds promising: The president’s team has gotten tough with Beijing; they’ve imposed tariffs; they’ve forced China to come to the table. But, realistically, the Trump China plan is a Trojan Horse.

Yes, U.S. negotiators are busily seeking increased protections for U.S. intellectual property. However, all this will do is enhance the security of corporations that locate factories in mainland China. And that will provide the added safety net needed for other multinationals to outsource more production.

Simply put, the president is being doubly naive. He trumpets the virtues of tariffs that Beijing has already defeated through recent currency devaluations. And his negotiating team is just making China a safer place to offshore more U.S. factories.

None of this helps America’s small- and mid-sized manufacturers. Little has changed for them since China is still dumping product in the U.S. market, undervaluing its currency to boost exports, and heavily subsidizing exports of steel, auto parts and high-tech products.

Really, what this comes down to is currency. America’s trade deficits keep rising because of an overvalued dollar. China and other countries — including many in Asia — have purchased trillions of dollars in foreign assets over the past 15 years.

That has continually driven up the price of the U.S. dollar, which in turn has increased the price of U.S. exports and lowered the cost of imports. 

Little will change without action on currency. But President Trump isn’t connecting the dots, and has failed to keep his most important campaign promise: ending currency manipulation.

His China trade policy is failing, and unless he addresses an overvalued dollar and tackles China’s fundamental currency undervaluation, America will keep racking up larger trade deficits. That will keep hurting the domestic manufacturers who create good jobs and employ middle-class workers, including Trump voters.

Robert E. Scott is a senior economist and the director of trade and manufacturing policy research at the Economic Policy Institute.