Following President Donald Trump’s recent announcement to impose trade tariffs on imported steel and aluminum a lot has been written and spoken in the media against such a move. Most of it was negative, falsely creating gloom and doom scenarios and improperly labelling it as a protectionist measure.
Clearly, Trump’s measured action on tariffs is not protectionist. It is aimed at rebuilding the American economy by bringing back U.S. jobs that we held and which were lost by unfair competition and flagrant violation of existing trade agreements by our trading partners. Trump’s action is in concert with our free economy, but it uses the leverage of our market power to set right such violations.
The U.S. pioneered a culture of innovation. Innovation does not grow on trees. It takes a concerted effort to create, promote and nurture innovation. By establishing an educational infrastructure to foster human intellect and supporting its gestation by passing laws that promote free enterprise; and providing economic stability free of red tape, our government facilitates to harness our innovation to create high-paying jobs and build successful enterprises. Our innovation is the envy of the world. Many foreign countries constantly steal our innovation even though it is protected by worldwide intellectual property rights.
About three decades ago, we started losing our jobs for many reasons including:
• 1. The push by our government to sign free-trade agreements with foreign partners, such as the North America Free Trade Agreement, the World Trade Agreement, Central America Free Trade Agreement, etc.
• 2. The high U.S. corporate tax structure that was imposed on our companies, which discouraged them to repatriate the profits that they made overseas.
• 3 Cheap labor that became available overseas, which our companies took advantage of to have goods made overseas. In part, because of the trade agreements that U. S. signed, our consumer seemed happy because the prices of goods went down.
However, the cheap consumer goods came at a heavy price. Many U.S. companies were too eager to do business overseas, particularly with China because of its low labor costs and perceived scale of opportunity to sell our products in that country. Our companies shared their valuable technology with ventures set up in China owned jointly by the U.S. company and a Chinese partner, with the expectation that the Chinese venture partner would produce goods at a lower price than in the U.S. However, after the technology was transferred and goods were successfully produced, many of the ventures were deliberately terminated by the Chinese partner and the latter went into business on their own by using the U.S. technology and undercut the U.S. companies. Another destructive effect was the U.S. entity shut down its U.S. manufacturing base and permanently destroyed jobs that were held by our workers since it relied on the Chinese partner to produce goods. The myopic view of the U.S. companies to trust the Chinese partners and transfer their precious intellectual property and depend on them to produce goods backfired. Because of this misguided practice, imitators of the U.S. companies came into place. Examples of the American company and their Chinese imitator abound: Cisco — Huawei; Apple — Xiomi; Google — Baidu; Amazon – J.D. Com; Alibaba, Ebay – Taobao; and Priceline – Ctrip, etc.
President Trump made an election promise to bring such lost jobs back to the U.S. He has been steadfast in fulfilling that promise. With his signing of the tax bill last December, which reduces federal corporate taxes and incentives to repatriate over a trillion and half dollars parked overseas, he took the first steps to keep that promise. The tax cut is a boon to everyone — rich and poor. It makes our companies reinvest their profits to create high-paying U.S jobs. Because of the tax holiday followed by a repurchase of shares by our companies, the value of their share price has been rising. This is good because the pension funds on which the retirement benefits of many U.S. workers depend are thriving, thereby reassuring a potential good return.
The president’s trade announcement is fully in concert with his approach to further fulfill his promise to bring back jobs. As an opening salvo, it puts on notice all countries that have not been trading with our country on a fair and equitable footing. Countries, which have violated the trade agreements and unreasonably dumped goods, such as automobiles, solar panels, basic steel and aluminum, washing machines and garments, on our soil should realize that such dumping resulted in destroying our industries and precipitated the loss of millions of jobs. But for this unfair trade practice by foreign partners, U.S. jobs would have not been lost.
Some fear the affected foreign violators will retaliate by imposing reciprocal tariffs on U.S. exports. This is to be expected. However, such retaliation will be suicidal.
The U.S. is blessed with an enormous leverage when it comes to trading with other countries. Our economy is so huge that every foreign country is eager to sell their goods to us. With the newly enacted tax structure, the U.S. will continue to be an even stronger and more stable economy. With the anticipated boost of the U.S. dollar received from a successful handling of trade on fair terms, we will buttress the U.S. dollar as a reserve currency for the world to continue to rely on. The U.S. economic engine is bound to regain its strength and will pull the economies of the world that depend on it. We will soon be a net exporter of oil and natural gas. If a trading partner does not wish to renegotiate the trade deficit that U.S. is facing, it is free to decouple from this engine, but it will be left off and will lose immensely.
Many countries conduct trade on fair terms with us, but some want free trade, not fair trade. Notable among them is China. Trump’s new trade policy is aimed primarily at China.
Recent newspaper reports accuse China of being the main culprit in stealing our technology, know-how and intellectual property, as well as hollowing out our industries of jobs. In addition, national media have reported that China planted its state-sponsored agents posing as legitimate employees in our national labs and private entities to steal technology through espionage. Trump should confront Chinese officials against these activities and impose all permissible trade sanctions to arrest such activities.
Trump is a disruptor. In our modern corporate world disruptors are prized. Trump does not believe in maintaining status-quo. He is bold and a risk-taker which is what the U.S. needs now. We have long been afraid of change and resigned to a status-quo no matter how ineffective it has been to our economy, our governing principles and the welfare of our people, particularly in providing our people with meaningful jobs. The president should change the U.S. jobs landscape by using trade as a weapon to bring them back to our shores. What is needed is a set of targeted tariffs on the goods imported from China. If he succeeds, it will be one of his best accomplishments and the nation will be grateful.
T. Rao Coca is a physicist and intellectual property lawyer. He is a retired senior executive from IBM, NVIDIA and IGT. He is now is a corporate IP consultant and a Score volunteer.