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The first Trump administration changed America’s attitude toward global trade. Joe Biden doubled Donald Trump’s tariffs, while adding industrial policy to the mix. Now his parting gift to Trump is a new trade resolution that argues for US government support for the shipping, logistics and shipbuilding sectors in the face of Chinese competition. It will be the first big test of whether Trump’s second term will focus on the economic desires of his base, or the “tech-industrial complex” that Biden criticized in his farewell speech.
Time is not dangerous. The investigation, issued by the US trade representative under Section 301 of the Trade Act, describes how China has used non-market mechanisms to control the global maritime industry. While Biden has supported a pushback against such practices, not everyone in the Democratic Party has been eager to make the change. By releasing the case four days before Trump’s inauguration, the outgoing administration has ensured that it is not swayed by Democrats who would like to distance themselves from the issue of Chinese mercantilism. It has also thrown down the gauntlet for Trump. Will the fees be his only tool? Or will he support industrial policy and US workers in more efficient and sustainable ways?
Whether you support Section 301 action or not, it’s hard to read the case and argue that China’s shipbuilding behavior isn’t discriminatory. There are the usual problems, such as large government borrowing and access to excess capacity that is not a raw material market. Now there is a distortion in China’s labor market that makes it almost impossible for a market economy to compete in the maritime sector, where China now has more than 50 percent market share.
One of the most interesting parts of the report goes into the hey system. In this context, Chinese citizens are defined as either rural or urban, and cannot receive national benefits such as education, housing or health care outside of their place of birth. As many rural residents move to coastal areas to work, the result is that half of the population lives in urban areas, but only a third have urban clusters.
That has a very perverse effect on the Chinese and global labor markets. As one expert quoted in the report notes, the hey The system creates “a large group of hard-working, but highly efficient or flexible workers for China’s new economy, which is already connected to global trade networks”. It is essentially a large government transfer from labor to capital ownership, which is one of the reasons why Chinese economists concerned with boosting domestic consumption would like to eliminate it. (hey change is happening, although not as quickly as many would like).
It is also one of the many ways that the Chinese system is not compatible with the Bretton Woods trading system as it exists today. “There is no doubt that the very different nature of China’s economy makes it difficult to have a globalization system based on WTO rules,” noted economist and Nobel Prize winner Michael Spence. Indeed, that’s why Biden’s trade representative, Katherine Tai, push (although unsuccessful) for a new business model based on setting a floor, rather than a ceiling, in terms of environmental and labor standards.
Trump certainly won’t care about the former, but politically, he will need to care about the latter. The rupture between Maga’s center and the high-ranking billionaires in his administration they are already showing. If he chooses not to take the shipbuilding support advice left by his predecessor, the unions and Maga hardliners alike will do the same, which could sow great discontent in the days to come. his first 100.
But I’m betting that the Trump administration will pick up on this, and maybe provide stronger support than the Democrats would have. Trump loves shiny things, and nothing is brighter and more shiny than a new airplane.
More importantly, there are legitimate national security and commercial supply chain reasons to build non-Chinese maritime power. About half of US goods and 80 percent of world trade are shipped. China can greatly influence shipping prices and availability based on its market share. It is hard to imagine that this force will not be effective in case of US-China conflict. Trump has already encouraged the US to build ships with allies such as South Korea.
In fact, increasing the capacity of the fleet is a long-term, difficult task. However, the success of the Chips Act, which revived US semiconductor manufacturing in less than two and a half years, shows that it is possible to create stability and unemployment in an important industry without -have political will. The question is whether Trump will have it. Hitting paybacks on rivals and partners alike is much easier than crafting a multi-faceted industry strategy.
That said, the political attraction to it will continue. Much of the Biden administration’s stimulus went into red states. The CHIPS Act supports the construction of new semiconductor plants in Ohio, Texas and Arizona, all of which voted for Trump. The Two Ships Act was introduced last month providing a road map for maritime industry policy. Whether Trump follows through will say a lot about the direction of his second term.
