FT’s Martin Wolf - Donald Trump is wrong: China is not Mexico
Scott Sumner’s intelligent piece is a must read: An even bigger China shock
“Key trade advisor Peter Navarro and Secretary of Commerce Wilbur Ross hold highly unorthodox views on trade, accepted by very few professional economists—namely that a trade deficit reduces U.S. output and is largely caused by unfair trading practices by other countries.
Most economists believe that the U.S. trade deficit reflects our low saving rate, and that it does not reduce our output. If this conventional view is correct, then any successful attempt to get other countries to accept more of our imports will also result in America accepting more of their exports, leaving the overall trade balance largely unchanged.”
A 2011 classic - International Trade and US Prosperity by Philip I. Levy:
"...related source of confusion comes from trying to interpret bilateral trade balances in an integrated, multilateral world economy. In recent years, this has focused public attention on the U.S. trade relationship with the People's Republic of China. I will return to the policy questions surrounding that relationship later, but the large and persistent U.S. trade deficit with China has been held responsible for significant U.S. manufacturing job loss by organizations such as the Alliance for American Manufacturing and the Economic Policy Institute. While there are certainly serious issues with China's economic policies, the bilateral trade balance can be a deeply misleading measure. It evokes a two-country world, in which any job not undertaken in China would be done in the United States. In fact, one key to China's emergence as a global trading power was that it enmeshed itself in an East Asian trading network, often taking in nearly-finished goods and providing the final touches. What's more, just because China may be the low-cost producer of a particular good does not mean that the United States is the next lowest-cost producer. This misconception helped prompt the misguided U.S. Section 421 action against Chinese tires in 2009, which seems to have served mostly to reshuffle the sourcing of U.S. tire imports to other countries, while doing little or nothing to spur U.S. domestic tire production."
Columbia University economist Jeffrey Sachs notes:
https://www.cnn.com/2018/03/02/opinions/trump-tariff-move-shows-his-ignorance-sachs/index.html
“Trump thinks that America runs trade deficits with countries like China and Germany because the US is being swindled by them. The real reason is that the US saves too little and consumes too much, and it pays for this bad habit by borrowing from the rest of the world. The Trump theory of international trade is like a man in deep debt who blames his creditors for his spendthrift behavior.”
Why Free Trade Matters by Harvard economist Greg Mankiw
Interesting new research:
RE-EXAMINING THE EFFECTS OF TRADING WITH CHINA ON LOCAL LABOR MARKETS: A SUPPLY CHAIN PERSPECTIVE
Abstract
The United States imports intermediate inputs from China, helping downstream US firms to expand employment. Using a cross-regional reduced-form specification but differing from the existing literature, this paper (a) incorporates a supply chain perspective, (b) uses intermediate input imports rather than total imports in computing the downstream exposure, and (c) uses exporter-specific information to allocate imported inputs across US sectors. We find robust evidence that the total impact of trading with China is a positive boost to local employment and real wages. The most important factor is employment stimulation outside the manufacturing sector through the downstream channel. This overturns the received wisdom from the reduced-form literature and provides statistical support for a key mechanism hypothesized in general equilibrium spatial models.