We are in trouble when we have to look to Hollywood for a better solution to a world problem. In “Kelly’s Heroes” (1970), Don Rickles says, “Try making a deal!” (with the Germans).
“What kind of ‘deal’”?
“A DEAL deal! Maybe he’s a Republican.”
You do not need a Republican to make a deal with Xi Jinping. He is not a Republican, but he offers friendship to President Trump. We can all win if we follow the U.S.-Japan model of 1981, which shows that a good political deal is possible.
Politicians once made deals that benefited all parties to the agreement. We should make one with China. The Trump team loves tariffs (taxing imports). Tariffs are almost always a bad idea, but with the appointments of Robert Lighthizer and Peter Navarro as Trump’s economic brain trust, tariffs seem to be the economic tool of choice.
Tariffs on imports can be justified in some cases. America relied on revenue tariffs in previous centuries, but by the mid-1930s, revenue was raised by the income tax, and tariffs stabilized at 5 percent. Tariffs may be defensible now in retaliation for other countries’ tariffs on American goods, non-tariff barriers, health and safety, retaliation, anti-dumping, and retaliation for boloney import rules (e.g., Japanese rules on aluminum baseball bats and European Union prohibitions of genetically modified crops).
A justification for tariffs is saving American jobs. Of course, these arguments have been made before for garments, textiles, and strategic structural steel. They were as hollow then as now. Recent studies show that U.S. consumers and companies pay U.S. tariffs with proportional declines in U.S. imports. For example, Trump’s tariffs on washing machines are estimated to have raised their prices by 12 percent and saved 200 jobs at $817,000.00 per job. Rather than adding to inflation and reducing our consumption, the president should have made a deal with China like the U.S. and Japanese automakers in 1981.
The agreement between the United States and Japan resulted in a voluntary limit on the number of automobiles Japan exported to the United States. The Japanese of 1981 were not that much different than the Chinese today.
Japan had a firm centralized industrial policy dictated by the Ministry of International Trade and Industry, while China dictated its industrial policy. The outline of the deal is simple. U.S. car makers earn little, if any, profit, on small cars and produce them to satisfy EPA requirements and for export. China is the leader in inexpensive small EVs. In consultation with U.S. automakers, an informal quota on small Chinese EVs will be permitted in the American market duty-free. Chinese and American automakers might agree to cross-brand the Chinese vehicles (e.g., Apple with other companies like Nike).
The Chinese side will have their demands, but after negotiations, the United States and China will settle upon a number and type of vehicles to be traded. No Chinese EVs above that number will be allowed. The benefits to China are obvious (market penetration, use of excess capacity, and sales). This voluntary quota helps China deal with its economic problems, including reducing its surplus of vehicles and its “consumption deficit.” The benefits to U.S. automakers are also evident. They include cleaner cars, an imperative to build a charging station network, and cheaper vehicles for Americans courtesy of Chinese subsidies.
The technology is simple, and American autoworkers can be transferred to larger, more profitable vehicles, retired via sweetened retirement packages, or bought out. This type of settlement has been used before to settle the New York City Printers Union strike in 1978. A possible downside is that the Chinese use the autos’ electronics to gather intelligence, as is feared in Norway. However, the non-tariffed autos will be simple and easy to monitor and might be assembled here.
The Third Plenary Session of the 20th Central Committee of the Communist Party of China, held recently, was encouraging for a deal. As the meeting’s communiqué noted, China plans to “enhance its capacity for opening up” its economy to the outside world; foster “new drivers of foreign trade”; and develop, through expanded cooperation with other countries, “new institutions” to support an open global economy.
No trade dispute is unresolvable if all parties are committed to mutually beneficial and respectful engagement. Let’s make a deal.
