Will Trump match investment incentives offered by China?

Be ready for stiff anti-dumping duties on items like Chinese steel under a Trump presidency, but don’t count on the blanket 45% tariff on all Chinese imports promised by the president-elect in his campaign, says former Reagan Administration trade negotiator Clyde Prestowitz.

Prestowitz led numerous trade talks with Japan, China, Latin America and Europe as a counselor to the US Secretary of Commerce. He sees other possible moves by Trump: reciprocal actions by Washington to match investment incentives offered by Beijing and a surcharge on financial investments entering the US from other nations.

The author and president of the Economic Strategy Institute consultancy in Washington, D.C. also believes Trump should slash the US corporate tax rate to 15% and keep strategic production such as avionics in the US.

Prestowitz spoke with Asia Times Editor-at-Large Doug Tsuruoka recently about President-elect Donald Trump’s likely trade policies.

Asia Times: Is Trump’s proposed 45% tariff on Chinese imports realistic? Would this benefit the US in any way?

Prestowitz: When you ask if this is realistic you imply that it would be unique and unimaginably harmful. Keep in mind that many international markets are highly protected, if not by tariffs by a variety of non-tariff barriers that have the same or greater impact. China’s market certainly has this level or a greater level of protection in many areas, yet the country appears to be booming. South Korea, Japan, and Taiwan all maintain highly protected markets. The impact of the EU value-added tax being rebated on exports while it is imposed on imports has the effect of about a 40% tariff. Yet, no one raises an eyebrow.

Having said that, I doubt that there will be 45% across the board tariffs on all imports from China. But I can imagine very high anti-dumping duties on things like Chinese steel being dumped in the US market. Indeed, there already are high anti-dumping duties in place. I can also imagine measures to offset the subsidies that have long been extended to producers who move production to China as well as the ongoing production subsidies (such as the favorable utility rates) they receive.

AT: What will Trump specifically do on trade with China and other Sino-US economic issues after he becomes president?

Prestowitz: I think he will probably aim at substantially reducing the overall US trade deficit which, of course, also means reducing the US deficit with China. This could involve a number of variables from making it less attractive for US companies to move production abroad, to tougher enforcement of anti-dumping and other unfair trade laws, to matching investment incentives offered by China and others to entice investment, to a surcharge on financial investment coming into the US. These are just a few things I can imagine off the top of my head.

AT: What should Trump do to rebuild American manufacturing and increase US exports?

Prestowitz: Either introduce a value-added tax system or take measures to offset the impact of foreign VATs. Reduce the US corporate tax rate to 15%. Match the incentives that countries like China, Ireland, France, Singapore and others use to entice foreign investment. Track the investment planning of major US corporations and jawbone them to keep production, especially of critical items like avionics, for example, in the US. Remind them that they are constitutionally citizens of the United States and that they benefit in many ways from such citizenship. They also have obligations. Offer tax incentives for new, green field investment in the US. Be very strong in enforcement of trade law and in talking constantly to corporations about their investment plans.

AT: Are trade deals like Nafta and TPP inherently bad for the US or can something be done to fix them?

Prestowitz: Deals are not bad in and of themselves. Some deals are good, some not so good. The problem with a lot of US trade deals is that they are done more for geo-political reasons than for economic reasons. In addition, trade negotiations have never included the topic of exchange rates. Yet exchange rates are far more determinative of trade flows than tariffs. So, the US just needs to change the focus and objectives of its trade deals.