US-China trade war could slash almost 1 million jobs from the US economy, new study says

Almost 1 million American jobs are at risk due to the effects of the current trade war with China and further disputes between the United States and other countries, according to a new study.

Research from the Washington-based consultancy Trade Partnership Worldwide, paid for by the pro-free trade lobbying group Tariffs Hurt the Heartlands, ominously predicts that more than 2 million American jobs could be on the line should US President Donald Trump push ahead with his threat of a 25 per cent tariff on all Chinese exports.

Currently, US$250 billion of Chinese exports to the United States are subject to tariffs of either 10 per cent or 25 per cent, but the number of goods on the higher tariff range will increase on March 2 if US and Chinese negotiators do not reach a deal.

While the tariffs are partly aimed at reviving US manufacturing, the study finds that retaliatory tariffs levies on US exports by the likes of China, the European Union, Canada and Mexico are causing US exports to weaken.

Trump’s tariffs also mean that US manufacturers have to pay more for the imported components they use in their own products, making them less competitive to export.

Researchers looked at four scenarios based on actual or threatened tariffs, and examined the potential economic fallout over a one- to three-year period.

Scenario one 

Also known as “the base scenario”, it looks at if all the tariffs that were in place on November 1 remain in effect, including steel and aluminium tariffs and quotas, plus tariffs of 25 per cent on US imports of selected goods from China, plus retaliation.

This scenario would trim 0.37 per cent from the level of US gross domestic product (GDP) over three years, costing the average family of four US$767 per year, and result in net jobs losses of 934,700.

Scenario two

The base scenario plus US tariffs of 25 per cent on vehicles and parts imported from countries other than Canada, Mexico, the European Union, South Korea and Japan, plus retaliation.

The report predicts that this scenario would shave 0.43 per cent from US GDP, cost the average family of four US$902 per year and result in 1,040,200 in net job losses.

Scenario three

The base scenario plus US tariffs of 25 per cent on all remaining imports from China, plus retaliation.

Researchers estimate this would cut 1.01 per cent from US GDP, cost each family of four US$2,294 per year, and cause 2,159,500 in net job losses.

Scenario four

All three scenarios combined.

Researchers estimate this would reduce US GDP by 1.04 per cent, cost a family of four US$2,294 and cut 2,235,400 jobs from the US economy, net.

The report comes at a time when the US jobs market is in good health, leading some to conclude that it overstates the risks.

Some 304,000 jobs were added to the workforce in January, more than double the gain expected by analysts.

US-China trade war is starting to affect the numbers, as China’s surplus narrows

“We’ve seen the muted impacts in the first year on unemployment”, according to the founder of data intelligence firm Complete Intelligence, Tony Nash.

“I think the downside has been overestimated. We are also not seeing GDP contraction. Part of that is probably due to the fact that US oil and gas imports have helped with jobs, GDP growth and exports.”

Scott Kennedy, a China expert at the Centre for Strategic and International Studies, a US think tank, added in a tweet that the report “likely overstates [the] job impact” and does not take into account the jobs that would be added to the economy if China makes structural reforms.

New report issued on 2/6 estimates ~1M in lost US jobs if new round of tariffs w/ China. Likely overstates job impact, but bigger issue issue is that it assumes China won’t liberalize from Trump’s pressure. If China does relent, US jobs would rise. https://t.co/iAtfUjGHPv pic.twitter.com/mbIYcJRCO4

— Scott Kennedy (@KennedyCSIS) February 7, 2019

However, the study does illustrate the economic tightrope being walked by the US government under Trump.

The Trump administration has been trying to force Beijing to reform its economy in a way that would create a level playing field for American firms doing business in China.

It has given China a tight deadline within which it must stop engaging in the sort of nefarious practises that have irked foreign businesses for years.

By March 1, Beijing must agree to structural changes with regard to “forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture”, said a White House statement after Trump and Chinese President Xi Jinping met in Argentina on December 1 and agreed on the current trade war truce.

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However, in its aggressive pursuit of reform, the US government risks hurting its own economy, some analysts have warned.

Indeed, it has been a common mantra of free traders that the US tariffs are conducting a form of “self harm”.

“You have to ask what the tariffs do to your own economy,” the former US trade representative and World Bank chairman Robert Zoellick said in an interview in Hong Kong last month.

Meanwhile, in an open letter to current US Trade Representative Robert Lighthizer penned last year, technology giant Apple said: “It is difficult to see how tariffs that hurt US companies and US consumers will advance the government’s objectives with respect to China’s technology policies.”

US GDP growth is forecast to have slowed to 2.7 per cent in the final quarter of 2018 by research house Trading Economics, from 3.5 per cent in the third quarter.

The official data’s release has been delayed by the US government shutdown in December and January.

China, meanwhile, has been scrambling to meet some of Trump’s demands, desperate to avoid the tariff increase that could prove disastrous for its economy, which is in the midst of a broad-based slowdown.

Why is China now rushing through overseas investment reform from 2015?

The Chinese economy grew last year at its slowest pace for 28 years and was under significant pressure before the trade war, which has exacerbated the downturn.

Beijing is rushing through reform of foreign investment, which would offer greater protections to foreign companies in China, in areas including intellectual property and profits, at “unprecedented” speed.

In December, meanwhile, it drafted a law aimed at preventing forced technology transfer, a long-time complaint of foreign companies in China.

The Trade Partnership Worldwide report shows that current trade disputes are already holding back US exports.

Due to retaliatory measures by other nations, US iron and steel exports will fall by 42.7 per cent over three years if the status quo is maintained, the report said.

It added that the globalised nature of supply chains means that US manufacturers are having to pay more for their product components, due to tariffs on imports.

This will “make US output less competitive internationally”, meaning an 18.6 per cent decline in the export of footwear and other leather products, the report shows.

China law to protect intellectual property, ban forced tech transfer

The study shows that manufacturing, under the announced tariffs and quotas, can expect to add more than 83,000 jobs over three years. Within that, the iron and steel sector will add 22,000.

However, for the 126,900 workers that gain jobs as a result of the tariffs, 1,061,400 will lose their jobs, highlighting a huge net impact, if the study is accurate.

The damage inflicted in the case of a full-scale escalation, the authors wrote, will be nationwide, and California would suffer 248,399 job losses, with Texas the second-worst hit, losing 199,388 jobs.

However, there is not a single state that would add jobs in net terms, according to the research.