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Editor’s note: Lee Branstetter is an economics and public policy professor at Carnegie Mellon University. This analysis is being published here in collaboration with EconoFact, a nonpartisan economic publication.
The bilateral trade deficits between the United States and a range of countries, including Japan, Korea and, especially, China, fuel President Trump’s claims that these countries compete unfairly at the expense of American workers. We’ve seen this movie before; it echoes claims made in the 1980s when unprecedented trade deficits led members of the Reagan Administration to embrace protectionism more enthusiastically than at any time since Herbert Hoover. Much of America’s rising concern with trade at that time focused on Japan, which seemed to be steadily displacing American firms in industry after industry through “unfair trade.” The Reagan Administration and its successors tried to use American diplomatic pressure to decrease the bilateral trade deficit with Japan using tariffs and quotas on politically sensitive Japanese export industries like cars and motorcycles.
WHAT THIS MEANS
That fact that America’s trade deficit with Japan proved impossible to eliminate with tough talk should give us pause about trying to apply this failed strategy to any of America’s contemporary trading partners. For one thing, America’s leverage in negotiations is lower now than in the 1980s: the end of the Cold War has taken away the geopolitical leverage America once had over nations like Japan; America’s share of our trading partners’ exports has declined sharply; and now, as a member of the WTO, America’s ability to apply unilateral trade sanctions to individual trading partners is limited. But even in the 1980s, the effort to negotiate the trade deficit down through trade policy did not work. And another lesson from the 1980s should also be heeded – a tax bill that adds hundreds of billions in additional deficit spending over the next few years will further raise the trade deficit.
Lee Branstetter is a professor of economics and public policy at Carnegie Mellon University.
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