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Photo: Guido Radig

On the first Sunday of March, 1993, my wife and I took our young daughter for a dim sum lunch in Chicago’s South Side Chinatown. Afterwards, we bought her some traditional Chinese clothing. There would be many more dim sum lunches, we told her, as we liked Chinese people and knew she enjoyed the outings. However, we would avoid buying more products made in China, including toys, until the Chinese government significantly changed its practices to allow more American-made products to be sold there. (We’re still waiting.)

American companies were, of course, welcome as investors in China if they built up manufacturing there, and shared technology. However, various barriers continue to impede the selling of American-made goods. The merchandise trade deficit with China has grown from $6 million in 1985 to $6.2 billion in 1989 (the year our daughter was born) to $18.2 billion in 1992. In 2015 it exceeded $365 billion, the largest with any country, ever. The total trade deficit with China last year, including both services and goods, was a whopping $338 billion.

Certain members of Congress and Washington think tank researchers have spotlighted Chinese protectionist or “mercantilist” economic policies. The only widely known public figure to speak strongly and often about the topic over many years has been Donald Trump. While there are convincing reasons to believe Mr. Trump is not Presidential material, he has raised pertinent questions as to the way we have managed our trade relationship with China. (He has also brought other countries into the discussion, more on this in a moment.)

Some years ago, an Indiana supermarket executive and former State Department diplomat shed light on the matter. In the late 1980s, he studied the Mandarin language and Asian affairs at the Foreign Service Institute, then worked on trade policy. He had been part of a team negotiating the US-China trade relationship. What happened, I asked him. How did the Chinese get the better of us?

His answer was simple. In China, he and his American colleagues were “so taken with the culture” that they largely missed the business subtexts of the Chinese, who knew exactly what they wanted. They got it, too: continued liberal access to the American market, without a significant change in Chinese policy toward American-made imports.

During the current political season, Mr. Trump has continued to highlight the trade deficit with China as a legacy of failed deal-making, and he also speaks of job sucking trade deficits with Japan and Mexico. But what about Germany? The 2015 trade deficit with Germany was more than $20 billion higher than with either Japan or Mexico. What’s more, Germany is not particularly known for protectionist trade policies.

It is just very competitive.

Negotiating a more balanced relationship with China will not get us far, unless many more Americans of average and higher abilities prepare for demanding work in the productive and competitive economy. Remember, one reason why Chinese manufacturers became big suppliers here in the first place is that many Americans decided our country was graduating from a manufacturing vocation, and should become a “post-industrial” society.

They thought services would make up the gap, but services haven’t even come close. In 2015 our total trade deficit with the world – including both goods and services — was $539 billion. In fact, the U.S. has run a trade deficit every year since 1976, with its first $100 billion+ deficit in 1984. These deficits have occurred in recession and in expansion; during war and during peace; when the dollar is high and when it’s been low; when some interest rates were in the 20% range, and when the federal funds rate was at zero.

They began years before either NAFTA or the rise of China as a global economic power.

We have not been competing well with low cost countries like Mexico and China, nor with high cost countries like Japan and Germany.

It has been a long time since we’ve had a really competitive economy. The sooner we realize this, the quicker we can focus on solutions not only at the negotiating table but — most importantly — within our own selves. These solutions will demand a return to practical thinking, to hard-nosed approaches in our lives, our educational pursuits, and our work aspirations. In international terms, they will demand resisting impulses to scapegoat our neighbors in Mexico, and trying instead to learn more from the example of competitive countries like Germany.

Charles Orlowek

Chicago

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