Michael Lind: America is Losing the Trade War

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[Michael Lind is policy director of the Economic Growth Program at the New America Foundation.]

Is a U.S.-Chinese trade war brewing? Congress seems likely to vote on a bill condemning China’s practice of manipulating its currency to subsidize Chinese exports to America while imposing a virtual tariff on American exports to China. Meanwhile, in retaliation for the Obama administration’s decision to punish Chinese market manipulation by imposing tariffs on Chinese tires, the Chinese government has announced that it will impose tariffs on chicken exported to China from the U.S....

Britain successfully used sophisticated mercantilist policies to become the world’s leading manufacturing nation by the 1840s. At that point the British switched to free trade because they no longer feared foreign industrial competition. As Britain had done earlier, the U.S. followed a protectionist industrial policy from the 1870s to the 1930s. High tariffs kept British and other foreign manufactured goods out of the American market. At the same time, the U.S. government encouraged exports of metals, foodstuffs, and other commodities from Latin America and Asia, and kept the labor costs of American manufacturers low by importing low-wage workers to the industrial states from Europe and the American South. To keep wages low, American manufacturers also relied on the federal courts and the National Guard to crush organized labor. Like Britain, the protectionist U.S. practiced and preached free trade only when it feared no industrial rivals, thanks to the temporary devastation of Europe and Japan by World War II. Mercantilism is as American as domestically sourced apple pie.

A Japanese participant in U.S.-Japanese trade negotiations in 1955 named K. Otabe reminded the American delegation that "if the theory of international trade were pursued to its ultimate conclusions, the United States would specialize in the production of automobiles and Japan in the production of tuna ... such a division of labor does not take place ... because each government encourages and protects those industries which it believes important for reasons of national policy." Following the 1955 negotiations with Japan, the U.S. granted $37.2 million in trade concessions and received only $6.4 million from Japan. While Japan, following the classic mercantilist strategy used by 18th century Britain and the 19th century U.S., reduced its duties on raw materials and foodstuffs, the U.S. reduced its duties on Japanese manufactured imports like electrical products, apparel and glassware.

In recent decades, by using a variety of devices in addition to currency manipulation, the Japanese and Chinese governments have exploited one-way access to the American consumer market while keeping American products out of their markets. Here, too, they are simply doing to us what we did to the British empire a century ago. Between the 1840s and the 1920s, the British foolishly allowed the U.S. to sell in its domestic and colonial markets, even as the U.S. used tariffs to keep British goods out of American markets....
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