Media coverage of U.S. trade policy with China and other countries has been remarkably one-dimensional. The coverage almost exclusively treats the issue as being one of relative toughness. While this is certainly the way some politicians, notably Donald Trump, speak about trade, it conceals the real issues involved.

The United States pursues a variety of agendas in its trade negotiations. Naturally, it does not get everything it wants, it prioritizes some items over others. In some areas it clearly has been very "tough" as measured by outcomes. For example, Pfizer and Microsoft and other drug, software, and entertainment companies are collecting tens of billions of dollars a year from foreign countries because U.S. trade negotiators have been very tough in demanding that these countries adopt U.S.-type rules on patents and copyrights.

The United States has also demanded that other countries allow U.S. corporations to take their complaints to special tribunals outside of their domestic legal system. This is a central feature of the newly negotiated Trans-Pacific Partnership. Undoubtedly our negotiators had to be very tough to get these countries to surrender this aspect of their national sovereignty. (We even had to make a reciprocal sacrifice of sovereignty, allowing foreign investors a route around the U.S. legal system.)

Negotiators have not been tough in pressing demands on currency values, which would have meant a lower U.S. trade deficit with countries like China. While the trade deficit matters hugely to workers, some of whom directly lose jobs to imports and others who suffer indirectly from a weak labor market (in the era of secular stagnation we have no mechanism for making up the demand lost due to a trade deficit), it actually benefits many major corporations.

Companies like GE benefit from being able to produce at low cost in countries like China. Retailers like Walmart also benefit from having low-cost supply chains in the developing world. And highly-paid professionals like doctors, who are largely protected by regulations from foreign competition, benefit from a weak labor market by being able to hire cheap help.

In this context, a call to address currency values and thereby bring down the trade deficit, is not necessarily an issue about being tough with China and other trading partners. It is an issue about what will be prioritized in trade negotiations. Presumably if these countries met U.S. demands on currency, they would be less likely to meet demands on patents and copyrights or special courts for foreign investors.


It is also worth noting that raising the value of their currencies would not necessarily harm developing countries. In the textbook trade theory capital is supposed to flow from relatively slow-growing rich countries like the United States to fast-growing developing countries like China. This means that China would be running trade deficits and the U.S. would be running trade surpluses. In principle, that would allow China and other developing countries to build up their economies even more rapidly.

While it might be hard to envision that China's economy would have grown even more rapidly over the last thirty five years than it actually did, imagine that a decade ago we had insisted that China raise the value of its currency and move to more balanced trade rather than honor Bill Gates' copyright on Windows. Would it be in a better situation today?

No one expects careful reflection on trade policy from Donald Trump. We do expect better from the people covering him.