Trump's Central Plan Is to Force the Chinese to Buy What They Don't Need
There is one big problem at the core of President Trump’s trade demands on China: Even if China agreed to them, the United States doesn’t have the production capacity to sell China the goods it would seek. By and large, what China wants, the United States can’t provide; what the United States can provide, China doesn’t want.
The fundamental element that underlies capitalism is the simple fact that no one is forced to buy anything they don’t want. If they cannot efficiently produce something they need, they buy it from someone who can. That’s the principle underlying Adam Smith’s “division of labor” and David Ricardo’s “Theory of Comparative Advantage.”
But Trump is demanding that China buy exactly what the United States has to sell - rather than base their imports on their own market needs. It’s as though you went to a supermarket and they were out of the chicken you want, and tried to foist paper towels on you instead - to meet a production quota.
U.S companies would obviously love to sell more to China. More aircraft, for example. But that isn’t what China needs. China wants more electronic products, such as smart cards and high-tech autos. But the United States doesn’t want to sell them, out of concern for national security or intellectual property protection.
The United States simply cannot sell China more when it comes to autos and semi-conductors in any event because it is near full production capacity rates. China wants to buy about $3.6 billion more in mineral products, such as liquified natural gas, coal and crude oil, but the United States has only the spare capacity to export $100 million worth of the goods to them. China wants to buy about $1.4 billion in poultry, but the United States could only satisfy about half that much.
In a memo to clients, Citibank policy analysts Dana Peterson and Catherine Mann calculate the United States can increase sales to China by about $57 billion, mostly for soy and other agricultural products - far short of the $1.2 trillion in additional sales over five years that Trump has demanded. Even if the United States did increase exports to China by $57 billion, it would still be far short of achieving a balance in exports between the two countries - which to Trump seems to be an important goal for some reason.
To sell more to China, the United States would have to try to restructure its industry - requiring a shift of people and production capacity from other areas. Or it could shift products that it currently sells to its other trading partners. Analysts estimate that the United States could increase sales to China by redirecting $16 billion worth of large aircraft, $4 billion worth of technology, $4:6 billion worth of components, and $7.3 billion worth of passenger cars - but only by reducing sales to others, including long-time allies such as Canada, Mexico, South Korea, the EU and Japan
Remember the old Russian joke about the government-owned stores in the Soviet Union? What we want, they don’t have; what they have, we don’t want. Except it’s no joke. It’s one of the biggest differences between capitalism and socialism. Under capitalism, people buy what they want, and retailers rush to meet the demand while producers ramp up production. Under socialism, senior bureaucrats decide what will be produced for people. The result is store shelves overflowing with goods people don’t want - and out of the things people actually want to buy.
China would be happy to increase its imports from the United States. It is actually demanding many goods. What it doesn’t want to do - and cannot be expected to do - is buy things it doesn’t need in order to satisfy a government quota. That is the exact socialist philosophy the United States would love to see China move away from.
Free trade isn’t about selling more to someone else. It’s about ensuring consumers can buy what they need at a price they believe is fair and affordable. There is no point pressuring China to buy what it does not need - or re-configuring U.S production capacity simply to sell the China more of what it does.