Trump Wants to Funnel More Income Upward Through His China Trade Deal

Donald Trump is celebrating “phase 1” of his big trade deal with China. While corporate America seems to be joining the celebration (the stock market has been rising), it’s a safe bet that it is not likely to produce much of a benefit for ordinary workers.

First, it is worth refuting one of the main claims that this deal will be a boon to U.S. farmers. Trump apparently got commitments from China to buy large amounts of U.S. soybeans and other agricultural products. This is supposed to mean that farmers will be getting more money for their crops.

It is not entirely clear that we can enforce commitments that China’s leaders made. But more importantly, Trump’s claims show a serious confusion about the way markets work.

There is a world market for major agricultural products. If China buys more of these products from us, it will buy less from Brazil, Argentina and other major exporters. These countries will then be looking for new markets for their crops, which will be downward pressure on the world price, offsetting the upward pressure from China’s new purchases from the U.S.

The markets obviously understand this point. While the prices of soybeans, wheat and other farm commodities have risen somewhat in recent weeks, they are still well below their levels of 10 years ago. In short, our farmers will not see any big dividend from this deal.

One area where we will not see any major gain is currency values. Trump ran around the country during his campaign yelling about China “manipulating” its currency, meaning that it was deliberately keeping down the value of the yuan to give its producers an advantage in international markets. Trump basically declared an end to this crusade by removing China from a list of currency manipulators.

If Trump had negotiated a deal that required a rise in the value of the yuan against the dollar, it would have helped reduce our trade deficit with China. That would mean more manufacturing jobs in the United States. Again, China did make commitments to purchase more manufactured goods, but it is not clear how this will be enforced. It would be totally consistent with the deal as written for a Chinese company to buy these goods and then resell them to a third country to replace items they otherwise would have purchased from the U.S.

Unfortunately, this matters less now than it would have in the past. The loss of manufacturing jobs to trade in the 1990s and 2000s was devastating to large segments of the American workforce. However, getting these jobs back is not likely to reverse this effect. Manufacturing wages have been falling relative to wages in the rest of the economy over the last three decades. If we get new manufacturing jobs, they may not pay much better than wages in other jobs that workers can get.

A big part of this story is the decline in unionization rates in manufacturing. As the trade deficit exploded in the years 2000 to 2007, we lost 40 percent of unionized jobs in manufacturing. Even as we’ve added jobs in manufacturing since the Great Recession, the number of union members in the sector has continued to fall. For this reason, getting back manufacturing jobs will not have nearly as much impact as preventing the loss in the first place.

The one area where Trump’s trade deal could produce gains is by getting China to have more respect for U.S. patents and copyrights. This is a win for people like Bill Gates or companies like Boeing who get money from patent and copyright rents but is bad news for the rest of us. (The first quarter of the deal talks exclusively about intellectual property claims.)

At the most basic level, by not being required to transfer technology (a provision of the deal), the trade deal makes it easier for Boeing to outsource jobs to China. That’s good for Boeing’s shareholders, but bad news for Boeing’s workers.

More generally, stronger and longer patent and copyright protections are a big part of the upward redistribution of income over the last four decades. Economists like to blame technology for making people like Bill Gates very rich. In reality, U.S. patent and copyright policies act as government-granted monopolies that funnel so much money from the rest of us to people like Bill Gates.

A trade deal made in the interest of working people would make technology more open, and would focus on getting access to China’s technology. After all, China’s economy will be more than twice the size of the U.S. economy by the end of the decade.

There will almost certainly be far more technology that the U.S. will want from China than they will want from the U.S. Think of how much more progress we could make in developing technologies, conservation techniques and effective medicines if all research was freely shared.

Human progress is not the goal of the Trump administration. Rather, it is payoffs for his wealthy friends. And that is what this new China trade deal is about.