Free Trade

Trump Says Tariffs Are Driving American Businesses Out of China. Actually, 87 Percent Plan To Stay.

Foreign investment in China has not declined since the start of the trade war, either. In fact, it continues to grow.

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As it has become increasingly obvious that the costs of the trade war are falling on American consumers and businesses, President Donald Trump and his supporters have taken to arguing that even if Americans are being hurt, China is being hurt worse.

Usually, this takes the form of a claim that businesses are fleeing China to avoid the costs of the tariffs.

But like many other claims made by the Trump White House regarding the trade war, this one appears to be false—or at least way overstated. Foreign investment in China has not declined since the start of the trade war, according to Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics (PIIE), a trade-focused think tank. In fact, the growth of foreign investment in China has increased by about 3 percent on an annualized basis—about the same rate as in the years before the trade war started—since mid-2018 when Trump put the first round of tariffs on Chinese imports.

"Despite U.S. tariffs on China's exports to the United States, it appears, at least so far, that multinational firms, including those based in the United States, continue to find China an attractive environment for new investment," writes Lardy in a post published Tuesday on the PIIE blog. "Thus, Trump's claim that an exodus of foreign firms will force China to capitulate to US demands to settle the trade war is wishful thinking at best."

Lardy's findings track with what the U.S.-China Business Council, an industry group that represents companies doing business in both countries, reported in August. In a survey of its members, the group found that 87 percent had not moved out of China and did not have any plans to do so. That was down from 90 percent in a similar survey conducted a year earlier, but that slight decrease is a far cry from the Trump administration's claims that China is hemorrhaging businesses.

To the extent that businesses are trying to relocate supply chains outside of China, the main beneficiaries are countries like Vietnam and Mexico—not the United States. And such relocations were already ongoing before the trade war, according to A.T. Kearney, a manufacturing and trade consulting firm whose annual "Reshoring Index" measures domestic manufacturing of consumer goods against imports of the same products from 14 lower-cost countries in Asia. Vietnam's exports to the United States have doubled since 2013, for example, but the rate of growth skyrocketed during the first quarter of 2019.

Relocating out of China is a costly and complicated process—one that many businesses may be hesitant to undertake when there is so little certainty about trade policy. For American companies doing business in China, it probably makes more sense to just absorb (or pass along to consumers) the costs of the tariffs and hope things get better soon.

"If a manufacturer has to source different parts from different countries, that's not just as simple as picking up the phone and saying 'do you have this part and can you send me 500 of them,'" John Kirchner, executive director of congressional and public affairs for the U.S. Chamber of Commerce, explained last month. "It's a long, expensive process for employers and businesses to change up their supply chains."

And it's a process that makes even less sense for American businesses that are actively engaged in making products for Chinese consumers. As Lardy has pointed out, "a large share of foreign firms in China, especially U.S. firms, are there primarily to produce goods to sell on China's still rapidly growing domestic market."

Once again, it turns out that international economics are more complicated—and more difficult to design—than the president seems to think.

Then again, Trump does appear to understand that on some level. After all, if the tariffs were having their desired impact, he wouldn't have to "hereby order" American companies to stop doing business with China.

NEXT: It’s Not a Mystery Why America’s Biggest Cities Are Losing Population

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  1. “Like many other claims made by the Trump White House regarding the trade war, this one also appears to be false”

    You mean like the claim by Reason that tariffs are the same as taxes ?

    1. ” he wouldn’t have to “hereby order” American companies to stop doing business with China.”

      LOL

      a statement made on Twitter and hardly an official order – regardless of what Trump may have claimed earlier.

      There is certainly no evidence that people took it as an order.

      1. “Tariffs are taxes.”

        Heresy against Our Lord and Savior! Sedition against the Trumptatorship!

      2. Unless eaten by the producer, as seems to be the case here due to no signal in the inflation index.

        A 13% hit in corporate investment from u.s. to china seems to be bigger than no signal in inflation data.

      3. No, they aren’t. They are alike in many ways, different in others. One only succeeds in sounding like a fucking idiot claiming “Tariffs are taxes”

        1. Tariffs are NOT taxes, ’cause the Trumptatorship says so. All good minions MUST follow and BELIEVE!

          1. Occasionally you actually make well reasoned points but too often your posts are intellectual drivel akin to the good Rev.

            1. No sane and sensible person who uses words as they are defined, would deny that tariffs are taxes. So I fight nonsensical drivel with at least vaguely plausible drivel.

              1. It is possible to argue that fact. Granted they are not dissimilar but there is enough difference one can hold the position that tariffs aren’t taxes. I don’t personally prescribe to this interpretation but I also don’t automatically dismiss those who do.

    2. More Boehm bullshit.

  2. Face it, Boehm, you just can’t stand all the #Winning and can’t admit that Trump is much better at Calvinball than you. Why, you’re too stupid to even know that Calvinball is scored on the “I meant to do that” system.

    1. To some people, everything Trump does is random.

      13% of American business leaving Communist China is 100% RANDOM.

      1. Some peer inside Trump’s head and see a tesseract whiteboard covered with indecipherable equations. Others see in his head a lurching chaotic gelatinous mass, sprouting mouths that emit random cants of insults. I glimpse the same thing I see in lovecon89’s head: a lone tree with a napping donkey underneath, with a couple of flies buzzing around its head.

        1. Another bad attempt at humor?

          1. I would roast you too, Jesse, but you are already well done.

      2. But boehm was able to deduce 10k jobs from tariffs apparently…

      3. It’s only three percent more than previously.

      4. Well..
        I think Trump’s approach on China and tariffs is counterproductive and harmful to the U.S. economy. However..
        The particular company I work for does have manufacturing in China and did move it around due to the tariffs. They moved a bit of it from China to Thailand. They did move some manufacturing from China to the U.S. but there were other reasons that also came into that decision (e.g. shipping less costly to customers from U.S.). Also, the cost of manufacturing in China has actually increased a lot in the last 10 years. The biggest problem with moving out of China is the fact that other places don’t have the manufacturing capacity in place because the original outsourcing killed capacity in the U.S. and also caused us to lose our industry workforce knowlege in manufacturing. The Apple CEO complained he couldn’t find enough U.S. manufacturing engineers for a local plant. The reason is that few kids majored in manufacturing eng anymore because there were no jobs because those jobs had all been outsourced 2 gens ago.

        1. Its due time to abolish the socialist B.O.E. as another step in MAGA. The running joke in U.S. education is, “Those who cannot do – teach.” That needs to change to those who do can teach.

          For the particular company you work for that would open up a ton of new opportunities for growth in helping building up America/Americans instead of “outsourcing” (and actually subsidizing) all that needed talent to foreign countries.

          There was nothing “free” about the “free-trade” policies of the late 90s. As it turns out; it was all subsidizing foreign trade (i.e. forcing taxpayers to buy foreign goods).

  3. So a 13% drop is not a big deal? Really?

    1. Yeah, it doesn’t really contradict what Trump said. Assuming that that 13% did leave because of the tariffs, or some kind of economic patriotism. 13% is significant. I’m not sure if it’s really thousands of companies, but it seems likely that they do.

      1. Diversity of supply sources is our strength.

        1. Yes, just you wait and see what happens after American businesses jump through endless hoops to move factories (and their supply chains) from China to Vietnam, to “diversify our supply sources”! The POTUS = Chief Protectionism Officer of the Homeland will immediately them punish American consumers with more taxes (tariffs) in order to punish Vietnam for its success!

          https://www.businessinsider.com/president-trump-vietnam-tariffs-trade-war-target-2019-6
          Trump threatens to expand his trade war by slapping tariffs on Vietnam

          Moving factories and supply chains is MUCH easier said than done!

          1. Uh, don’t bother citing Business Insider for anything other than ball scores or the bare tits on page 7.

            1. Business Insider has titties?

  4. “It’s a long, expensive process for employers and businesses to change up their supply chains.”
    Yes it is, but anyone paying attention to one’s supply chain is going to start looking for alternatives so even if Trump relents, the next fool may not, and it is best to be prepared. Having worked for an employer that both imported and exported to China, I can assure you tariff wars have winners and losers on both sides.

    1. “I can assure you tariff wars have winners and losers on both sides.”

      Well yes. It should be obvious to anyone but true believers in magic markets that tariffs and trade restrictions are advantageous to some, or every country on earth wouldn’t have them.

      1. Murder, suicide, cancer, contagious disease, car smashups, pollution, and mental illness must be advantageous in some way, or we wouldn’t have such things on every nation on the planet.

        Do you see anything wrong with this logic?

    2. The winners will be Thailand and Vietnam.

  5. Trump Says Tariffs Are Driving American Businesses Out of China. Actually, 87 Percent Plan To Stay.

    Boehm cannot admit that Trump said he would do something and he did it.

    13% drop in American businesses supporting Communist China’s subjugation of human rights.

    1. Unfortunately , most Reason articles seem to be more anti-Trump than pro-libertarian.

    2. Your constant drooling over mediocracy is truly entertaining.

      1. The constant new trolls coming to boost web traffic for Libertarians to cheaply get their voice out in the comments is truly appreciated.

  6. What business can’t wait 16 months for the situation to improve?

    The businesses that change their circumstances to avoid 16 months of aggravation deserve what they get.

    1. Rev,

      Do you side with all the illiterate Chinese in the provinces, (ya know, the yellow clingers) or just the crazy rich children of the central committee?

      1. “Do you side with all the illiterate Chinese in the provinces, (ya know, the yellow clingers) or just the crazy rich children of the central committee?”

        You think the asshole-bigot is bright enough to understand his claims regarding China might reflect his idiocy?

    2. Actually Art, it might not even be that long. Recall the legal analysis of Harvard’s Professor Lessig — HOW HILLARY CLINTON STILL CAN, AND SHOULD, BECOME PRESIDENT AFTER THE TRUMP-RUSSIA INVESTIGATION.

      And as everyone knows, Mueller’s investigation definitively proved collusion and obstruction. (Well, everyone except #TrumpRussia denialists like Glenn Greenwald and Michael Tracey.)

      #Impeach
      #StillWithHer

      1. You are truly deluded if you honestly believe that The Mueller report was proof of collusion. The report specifically states that Russia probably interfered, but no American citizen was involved.
        Where the hell are you getting your information from FFS.
        Even the Dems have moved on from this ridiculous collusion narrative. They dragged Mueller up before congress and all they managed to prove is that Mueller probably did not even write his own report, let alone read
        You are a complete asshole

    1. That is racist for showing how Boehm uses his hackish writing style to promote a Lefty Narrative.

  7. Come on, Boehm, this is getting silly. Have you ever heard of Trump before? He says hyperbolic and over the top things all the time. It’s kind of his thing. And in this case, his claim appears to be factually correct, or pretty close.

    I’m as opposed to the tariffs as anyone, but I’ve got to agree with others here that, at least on this topic, the coverage seems to be more focused on trashing Trump than a careful analysis of the issue, or a libertarian critique.

    1. It’s very simple. Drumpf’s disastrous economic policies have caused Charles Koch’s net worth to stagnate at an unacceptable level below $60 billion. Therefore Reason must continue to apply pressure as long as we’re in this #DrumpfRecession.

      Keep up the good work, Boehm.

  8. The WSJ had an article about a week or so ago about how virtually every company wants to move out of China but can’t find the capacity, currently. Any CEO who doesn’t realize there is a unique and massive risk by locating capacity in China at this point is a fool and should be fired. It can’t happen overnight. Significant production has migrated to Vietnam and Mexico and will continue to do so as those countries benefit from the belated realization that you can’t have a sworn rival/enemy control your entire supply chain. I think Xi’s actions pretty much has doomed China, over the next 15 years, to lose significant amounts of manufacturing, which, given the low margins and requirements to produce at high capacities, will end up imploding China’s economy.

    I don’t know why Reason tries to worship China and “free” trade at all costs. If you have to spend billions upon billions on the military because you’re “free trade” made China rich and belligerent, is it really “free” trade or was there are pretty damn significant externality? Or more than one, given how China has so little farmable land and blows a shit ton of pollution across the Pacific?

    1. I smell a self-fulfilling prophecy here. Declare trade wars on everyone who you remotely suspect of becoming a military enemy, is a quick way to make military enemies. When goods and services do not cross international boundaries, boots and armies soon will!

      1. Like China can possibly survive a war with the US.
        What a ridiculous comment

        1. OK, then, proceeding logically, the USA should declare wars on all and sundry (or at least, threaten them with war), whoever we think cannot survive a war with us. War is GREAT for the health of the State, and for The Race.

          War is peace, and peace is war!

          1. First, China has long been a military enemy, or did you forget they harassed US ships in international waters, clipped an USN aircraft, causing it to crash, took the survivors prisoner, support North Korea (who we are still technically at, for lack of a better word, war with) etc. Oh btw the first two incidents happened under Bush who expanded trade with China.
            Second of all stating the US could survive a war with China does not logical lead to “…the USA should declare wars on all and sundry (or at least, threaten them with war), whoever we think cannot survive a war with us. War is GREAT for the health of the State, and for The Race.

            War is peace, and peace is war!” If that is how your logic works it explains a lot of the sophomoric tone of your usual posts.

            1. Hell since 1947 China actively engaged US troops in Korea, armed the North Vietnamese, armed Iran and Iraq, supported a number of terrorist organizations, armed the Syrians, has opposed just about every single US foreign policy initiative, supported Venezuelan nationalization of US oil fields, interfered with US trade with our allies (Taiwan), actively funded state sponsored industrial espionage, launched numerous cyberattacks against US interests, both government and private. I could continue, but if China is considered a hostile nation, I’m not sure what would be.

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  10. Sigh…..Another day, another article by Boehm demonstrating his affliction with acute tDS, acute trade Derangement Syndrome. A short primer is in order for Mr. Boehm, who has a very limited understanding of supply chain, and practical realities of business generally.

    Mr. Boem….Since you have a limited understanding of how the fuck supply chains work and their impact(s), let me give you a much needed primer.

    First, the movement of 13% of American business supply chains out of China and into other countries (Vietnam, Indonesia, Brazil, Egypt, Taiwan, etc.) is a major development. These supply chains took years to build, and local Chinese economies are entirely dependent on them. Years of effort by China to entrench supply chains inside China are now being undone. Billions upon billions of money spent by China over decades to develop supply chain infrastructure has just been wasted. They are not coming back anytime soon.

    Second, the movement of supply chains for American business is an inconvenience, and a rather minor one at that. What, do you think we can’t negotiate a good deal with alternative countries? Really? How naive are you? This supply chain movement is not hurting American business appreciably.

    Third, in C-Suite offices, the concern is not the cost of moving the supply chain out of China. Nope. The concern is gross and net margin. They could care less about tariffs, per se. They adjust and move on. It is at most a pain in the ass. As an aside, American consumers don’t seem to be cutting back spending.

    Now Mr. Boehm, if you have a better alternative to change Red China’s serial lying, serial cheating and serial theft of American IP, I’d love to read it. It is not as if we don’t understand the problem here. But right now, your articles have the tone of a donkey braying, and nobody really wants to sound like a jackass.

    1. “Second, the movement of supply chains for American business is an inconvenience, and a rather minor one at that. ”

      Utter, total hogwash! I have seen it up close and personal! Try that with any cutting-edge tech! You have patiently trained Chinese techs and engineers to assure good assembly (including complex robotics and other specialized assembly machines), quality control, and VERY sophisticated test hardware and software! For YEARS! Now we have to repeat the entire process (to include moving the machines, physically as well as through the often-nightmarish paperwork internationally), to move it to Vietnam! At the drop of the hat from the Trumptatorship!

      Then when Vietnam will get too successful, repeat the process yet again!
      https://www.businessinsider.com/president-trump-vietnam-tariffs-trade-war-target-2019-6
      Trump threatens to expand his trade war by slapping tariffs on Vietnam

      Moving factories and supply chains is MUCH easier said than done!

      1. Vietnam does just fine in this area too. So do lots of countries in the region.

      2. Instead of moving, a lot of companies are starting new manufacturing for their next products while winding down manufacturing of older product lines. Case in point, several smart phone manufacturers are building their next generation smart phones in Vietnam now or announced they will be producing them in Vietnam and Thailand. This decreases investment in China and will eventually lead to those plants closing as their product lines become obsolete.

        1. soldier….Here is the piece I wonder about. At what point does social unrest begin within China translate to social unrest?

          1. It’s hard to say. The Chinese have a history of rebelling when economies collapse. Until that time they seem willing to accept a certain level of tyranny and corruption. Historically speaking they haven’t much experience of anything else. If you study their dynastic past, even those dynasties founded on reforming corruption of previous dynasties invariably created their own level of corruption. The Chicoms are just another tyrannical dynasty.

  11. I wonder how Boehm deals with the inconvenient truth that China keeps negotiating with us. If they’re not being hurt, why do anything?

    1. Yeah, you’d think employees with an organization called ‘Reason’ would actually try doing it….

  12. I guess 13% planning to move over it is something. Not a really a big win for Trump’s policies here, but certainly not the complete failure Boehm is trying to make them out to be here.

  13. China’s economy (and it’s political stability) are purely based upon continuous growth. China has seen 13% of American Manufacturing leave, but even greater has been the decrease in not just US but European investments. According to the American Chamber of Commerce in Shanghai, nearly 27% of companies admitted they steered investment away from China over the past year.
    I read a lot of world press and the overall theme is Xi can’t stimulate himself out of the coming economic collapse like the Chinese have in the past, you can only build so many unused superhighways and uninhabited cities before they stop stimulating. Banks are already collapsing in China. Worker unrest is growing, especially in more peripheral provinces (it’s more than just Hong Kong despite all the media focus). It is starting to spread to some of the cities and middle class. Also, much of the decreased investment is being directed towards Southeast Asia, India (not sure why they didn’t classify that with the rest of southern Asia?) and the US (up 5.5%). It seems the trade war, while not the top reason given by corporation is definitely a top three factor. US manufacturing decreased, paired with less foreign investment is just speeding up a process that was already underway. Parastrika didn’t happen overnight why does Boehm think that the trade war will bring immediate results?

    1. Boehm is either dishonest or not very bright. Maybe some of both.

      1. Boehm is both.

  14. Here’s a great article on why the actual results of Trump’s tariff war actual benefits elites instead of the blue-collar audience he’s trying to appeal to:

    https://theweek.com/articles/863847/contradiction-heart-trumps-trade-war

  15. Another horrible “Reason” analysis trying but failing to throw shade at the success of the US side of the trade dispute. And you actually have the information in the article but refuse to acknowledge it. Yes, many US companies are continuing to invest in China based production. But that is to meet the local, captive needs of the huge Chinese domestic market. That’s production that isn’t impacted by export tariffs. You mention this at the very end of the article but don’t note it’s significance. But it’s a different story for multi-nationals that are looking to expand production to meet the needs for export to the US. And again, you almost get there. For US export markets, companies are choosing to locate new or expanded production in less troublesome regions like Southeast Asia and South & Central America. And once production is sited there, you’re right, it will be difficult to relocate. These are expansions that China is never going to see, even if the trade dispute is resolved. Again, a failure to see the significance of information sitting right in front of you.

  16. Actually need to side with Trump on this one. 13% leaving is a big deal.

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