Who would have thought the China–U.S. trade war would have produced many different results?
When the contest came into the open with President Donald Trump’s tariffs of 2018 and 2019, many people worried that the Trump administration’s action would cost the American consumer dearly by raising the price of Chinese imports. Many at the time argued that any change in China was not worth the cost.
As it has turned out, the tariffs have limited Chinese power in unexpected ways, cost the American consumer little or nothing, and benefitted Mexico and other developing countries. The tariffs may have even helped stem the illegal immigrant tide at the U.S. southern border.
Six years ago, the Trump White House first imposed tariffs, aiming to pressure Beijing to lift what the president described as unfair trade practices. These included subsidies for domestic Chinese producers, patent theft, and the insistence that Americans doing business in China have a Chinese partner to whom they must transfer proprietary technologies and trade secrets.
Many worried about the cost to American consumers and businesses and showed considerable skepticism about a change in Beijing. This commonly held view was entirely correct about Beijing. Chinese policy has not changed. It was, however, wrong on the cost to Americans. Because the yuan has depreciated against the dollar, the dollar cost of Chinese goods to Americans has actually trailed the overall rate of inflation.
Even though the Biden White House has kept the tariffs in place, ostensibly with the same goal as the Trump administration had, Beijing has refused to relent on its trade practices. It has refused, even as President Joe Biden has added to the pressure of the tariffs by blocking the sale of advanced semiconductors and semiconductor manufacturing equipment to China and forbidding U.S. investment in Chinese technology. The president has also subsidized domestic manufacturing of semiconductors and is threatening new and higher tariffs on Chinese products entering the United States.
In all this subsequent activity, President Biden has made clear that he wants to go beyond a change in Beijing’s trade policies. Though he has never said so out loud, he aims to stymie Chinese development. In this, some signs of success have emerged, less because of the Biden administration’s policies than from a delayed reaction to the original Trump tariffs.
To avoid the cost of the tariffs, the Chinese industry has shifted emphasis from domestic operations to facilities in other Asian venues and Latin America. Mexico, Colombia, Vietnam, Indonesia, and the Philippines have gained a lot. This trend has slowed Chinese economic development by denying the Chinese economy the capital investment, productive facilities, and employment growth it might have enjoyed were it not for the tariffs. The shift has occurred gradually over the six years since the Trump tariffs first emerged and has grown to something significant.
Mexico is an especially attractive destination for facilities leaving China because it has business-friendly policies and is close to the huge U.S. market. In just the first two months of this year, for instance, capital investment in Mexico has proceeded at three times the pace of 2020. Not all of it is Chinese money, but much is. This is not all. According to the Industrial Parks Association of Mexico, foreign manufacturing, much of Chinese ownership, has booked all sites around Monterrey, close to the U.S. border, out to 2027. Mexican exports have risen by some 6 percent over the past year, and in 2023, Mexico, for the first time, surpassed China to become the largest trading partner of the United States.
True, these facilities remain under Chinese ownership, but unlike domestic Chinese factories, Beijing has only limited control of them. Beijing cannot command activity in Mexico as it can domestic operations. Even if it were to order the Chinese owners to abandon their Mexican operations, which is highly unlikely, the facilities would not go home. Some other operators would seize the opportunity to run the factories. Mexico, rather than China, would possess the productive facilities already constructed with Chinese capital, along with the jobs and the impetus for development.
While contributing to a weakening of China’s economy at the margin and benefiting Mexico and other developing economies such as Vietnam, Indonesia, the Philippines, and Colombia, the tariffs may have also helped with the illegal immigration crisis facing the United States. An improving economy in Mexico raises opportunities for its own population and others from elsewhere in Latin America who have moved north for economic reasons. To this extent, these people have less of a need to go to the United States. The effect is impossible to measure, and the flood at the southern border remains huge. Still, in a small way, at least, the tariffs, albeit indirectly and unintentionally, have offered some relief on this front, too.
No one—perhaps especially President Trump—could have foreseen these results six years ago or even four. They were far from the White House’s aim when it imposed the tariffs in 2018 and 2019. But they are a reality. Beijing’s loss has turned into gains for these developing economies, especially Mexico, and at zero additional cost to American consumers.
