2016 election, China, currency manipulation, Donald Trump, Following Up, free trade agreements, Hillary Clinton, Information Technology Agreement, non-tariff barriers, Obama, subsidies, technology, Trade, Trade Deficits, value-added taxes, VATs
Since earlier this week I chided the Obama administration for prematurely declaring victory in reaching a global trade deal to phase out tariffs on information technology products, I’m honor-bound to report today that the final obstacles have been cleared and the agreement has been reached. Now for the bad news: This new World Trade Organization deal looks even worse for the United States as other recent agreements like President Obama’s Trans-Pacific Partnership (TPP).
Now that China has finally submitted its time-frame for eliminating duties on the 201 products covered in the Information Technology Agreement (ITA), the agreement is on track to enter into force next July. The staged tariff-cutting process could be problematic, vulnerable as it is to changing national and global economic conditions and thus to political will. But from the American standpoint, the biggest problem with the ITA mirrors some of the biggest problems with Washington’s previous trade deals: It promises to get rid of whatever trade barriers the United States still maintains, but leaves in place many of the biggest trade barriers erected by foreign governments.
As noted in a post last year, the ITA ignores non-tariff barriers (NTBs) and other forms of trade predation. These longstanding policies and practices block a wide range of American exports and artificially boost the competitiveness of foreign products, and are much less prevalent in the United States. Recently, such measures have of course grown much more important in tech giant China in particular, as Beijing has stepped up its harassment of foreign-owned companies in order benefit the domestic champions it’s trying to build and to secure advanced knowhow.
Because foreign government bureaucracies, especially in East Asia, work so secretively, non-tariff barriers are often notoriously difficult for American companies and officials to identify with any precision, much less tackle. Therefore, even trade deal provisions that ban or curb them are never especially promising. But at least the TPP mentions them in the text and takes a stab at creating disciplines. The ITA negotiators’ apparent position? “Never heard of ’em.”
Moreover, like the TPP, the ITA leaves in place the foreign value-added taxes (VATs) that serve as hidden barriers to U.S. exports and hidden subsidies for foreign goods headed for the United States. VATs are used by nearly all significant trading countries, with the conspicuous exception of America. And like the TPP, the ITA ignores currency manipulation – a huge mistake given China’s apparent determination to weaken the yuan once again, and the fondness for exchange-rate protectionism displayed historically by many other major and emerging information technology producers ranging from Japan to Vietnam.
As a result, the only clear American winners from the ITA will be offshoring-happy U.S. technology companies whose business models have long emphasized supplying the high-income United States from countries whose production costs are super low, whose governments are enthusiastic subsidizers, or both. These firms’ profits may improve, but the U.S. economy will see even bigger trade deficits, and therefore even slower growth, even less hiring, and even weaker wage hikes.
During this campaign season, many establishment politicians have suggested that bombastic Republican presidential front-runner Donald Trump, a strong trade policy critic, is actually working for his Democratic counterpart Hillary Clinton. Trade deals this incompetent or special interest-driven make one wonder whether President Obama is actually working for Trump.