NOTICE | What would Hamilton say about China? | Op-Ed

A few recent headlines have passed without much attention. The first story is that our national debt has reached $30 trillion, while the second is that the trade deficit for 2021 has reached a record high of $859.1 billion. Both stories have been virtually ignored because the American people have just become numb to the topics, though they may miss the larger ramifications, especially as they relate to trade.

Of the two issues, the trade deficit receives less attention than the national debt; many policy makers on both sides of the philosophical divide apparently view it as meaningless. The trade deficit is simply the amount by which imports into the United States exceed what we export in any given year. Last year’s $859 billion trade deficit represents a 27% increase over the previous year. One of the contributing factors to this increase was inflation, as consumers purchased more goods at inflation-fueled prices. Some of the main imported goods included computers, cell phones, toys, furniture, automobiles and medical supplies. Since 2001, our country “has run up over $12 trillion in accumulated global deficits.”

As part of our total trade deficit, the imbalance with China alone was $355 billion, marking a full decade of that annual deficit reaching over $300 billion (Chart 1). In fact, China’s exports to the United States have increased by 31% since 2018. The United States has also run a sizable trade deficit with the European Union, among other trading partners.

There is an endless amount of data to further illustrate trends in US trade. Perhaps our leaders should pause for a moment and consider the impact of these trends beyond a simple calculation in dollars and cents. Are there other outcomes that are more difficult to quantify? Have we become too dependent on foreign trading partners and, if so, what does this mean for the supply chain or even for national security?

Ambassador Robert Lighthizer, who served as President Donald Trump’s U.S. Trade Representative, sums up the balance our leaders have tried to strike over the years as they work toward what’s best for America: “The conservative statesman from Alexander Hamilton to Ronald Reagan sometimes supported protectionism and at other times leaned towards lowering barriers. But they always understood that trade policy was just a tool to build a strong, independent country with a thriving middle class.

If America viewed trade policy as a tool and not an end in itself, we would want to consider how dependent we are on other nations for necessities, including potentially hostile adversaries like China. This even includes documents related to our national security and defense. Currently, a shortage of semiconductors exists. “Why are semiconductors so important? Because computer chips are the “brains” not only of computers, cars, and medical devices, but also of the weapon systems that support the US military. Being so dependent on imported computer chips makes US national security vulnerable to the whims of the global marketplace,” wrote Michael Stumo, CEO of the Coalition for a Prosperous America.

“What is worrying is the extent to which China dominates the global supply of these crucial resources. For example, China controls 70% of global lithium supplies, 80% of rare earth metals, and about 70% of global graphite. These materials are irreplaceable for producing everything from electric vehicle batteries to solar panels and semiconductors,” Stumo explained.

As Ambassador Lighthizer alluded to, this is not a new dynamic. Even our founding fathers understood the danger of depending on a foreign power for necessities. Before being the inspiration for an incredibly popular musical, Alexander Hamilton served as General George Washington’s aide-de-camp and led a charge during the Siege of Yorktown, which resulted in British defeat in the British War. independence. Hamilton would later become Secretary of the Treasury in President Washington’s administration and he is considered the “father of American capitalism”. During the Revolutionary War, Hamilton saw firsthand the various hardships endured by the Continental Army. A very big challenge was the lack of supplies and our reliance on France for resources.

In 1791 Hamilton published his Manufacturers Report and one of the main points he made was the importance of national self-sufficiency. As Hamilton argued:

Not only wealth; but the independence and security of a country seem materially linked to the prosperity of manufactures. Each nation, in view of these great objects, must strive to possess within itself all the essential elements of national provisioning.

In his first message to Congress, President Washington made a similar argument when he said the nation should “promote factories which tend to make them independent of others for essential supplies, especially military.”

Finding foreign business partners has undoubtedly helped consumers by making many products more affordable. This has benefited companies with lower input costs, a lighter regulatory burden in some countries, and additional markets in which to sell their products. Living in Iowa, we must recognize all the benefits that our agricultural producers, for example, have reaped by exporting food around the world.

Still, as US trade strategy hones, is there a broader view our policymakers could take? To what extent should the threats that Hamilton and Washington warned of more than two centuries ago be taken into account in the next rounds of trade agreements? The leaders of this country will have much to consider beyond the sum total of economic activity.

John Hendrickson is Policy Director for Iowans for Tax Relief Foundation

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