DC Velocity - October 2018

56 DC VELOCITY OCTOBER 2018 www.dcvelocity.com ANY GOOD COMMERCIAL FISHERMAN WILL TELL YOU that casting a wide net may land you some prize catches but also some fish that don’t belong there. Likewise, in its trade fight with China, which presents as wide a net as there can be, the Trump administration risks ensnaring species that don’t belong there.

Take the American Lighting Association (ALA), whose 3,000 members—makers of residential lighting, ceiling fans, and controls—are facing 10- or 25-percent tariffs on what they import from China. Like virtually all U.S. business interests, ALA believes China should be held accountable for bad trade behavior. Yet the group doesn’t have any issue with Beijing over intellectual property (IP) theft, which is purportedly the main reason behind the administration’s tariff actions. “While the lighting industry takes the issue of IP protection very seriously, we do not have any severe cases of IP theft for which tariff protection is warranted,” said Eric Jacobson, the group’s president and CEO.

About 97 percent of residential lighting sold in the U.S. is made by U.S. producers, which ALA said are providing more high-paying jobs than ever before. Large-scale tariffs will eliminate many of these jobs because manufacturers will be forced to cut spending on domestic R&D (research and development), the group said. ALA has asked the U.S. Trade Representative to review the appropriate harmonized tariff codes that would determine which of its products would be subject to the new levy. A ruling had not been made as of Sept. 12, the day this column was written.

ALA’s situation underscores the unintended consequences that
accompany a trade war on such a massive scale. According to Yu
Miaojie, a vice dean at Peking University’s National School of
Development, about one-third of China’s US$2 trillion in annual
export value comes from a practice called “processing,” where
China imports raw materials and components from a dozen
or so countries—including the U.S.—and turns them into fin-
ished goods for sale to the U.S. and European Union (EU). The
imposition of tariffs on $200 billion in Chinese products may
cut so deeply into Chinese firms’ process profitability that they
will be forced to shut down some assembly lines, Miaojie told
“NewsChina” magazine in September. This, in turn, will reduce
demand for raw materials, parts, and components
from supplier nations, he said.

The academician makes one more point that should resonate in an election year: About 260,000 American jobs will be lost should the U.S. accompany the tariffs with restrictions on Chinese foreign investment.

These downside risks might have been mitigated, if not avoided, had Trump not withdrawn the U.S. from the 12-nation Trans-Pacific Partnership That may indeed come to pass. In the meantime, though, there will be some fish undeservedly caught in a very wide net.