About three weeks before last year's presidential election, President Trump appeared before John Micklethwait, Editor-in-Chief of Bloomberg, at the Economic Club of Chicago. The topic was how Trump's tariff and industrial policies would impact voters.
Micklethwait: Why should they trust you with that?
Trump: Because we're about growth. She's got no growth whatsoever, and we're all about growth. We're going to bring companies back to our country. You look at it even today; as I was driving over, I saw these empty, old, beautiful steel mills and factories that are empty and falling down. Some have been converted to senior citizens' homes, but that's not going to do the trick.
And we're going to bring the companies back. We're going to lower taxes still further for companies that are going to make their product in the USA. We're going to protect those companies with strong tariffs because I'm a believer in tariffs....to me, the most beautiful word in the dictionary is tariff. It is my favorite word."
It was classic Trump - lamenting how America's corporations, aided by Washington's policymakers, expanded trade willy-nilly to hundreds of nations worldwide by importing inexpensive goods with near-zero tariffs but never retaliating when those countries imposed tariffs on American products, making them uncompetitive. In Trump's telling, America in the 1980s and 90s chose the American consumer over the American worker. Chasing low wages, substandard environmental protections, and cheap land, American companies outsourced production to foreign countries. Importing items produced at pennies on the dollar from other countries and selling them to Americans at lower prices would keep inflation in check in the United States and improve the standards of living for American households.
I can relate well to Trump's statement about "empty, old, beautiful steel mills and factories that are empty and falling down." In 1989, newly armed with a graduate degree in Computer-Aided Manufacturing from Villanova University, I traveled each week to Torrington, CT, along the Naugatuck River, to help set up a fine blanking factory that my company had bought. I spent nearly four months there, and the town was a bustling hub of old-style America. The community relied heavily on Torrington Bearings, a company that was its heart and soul. Just about everyone in town either worked at Torrington or knew someone who worked there. Restaurants, bars, and even the local hospital owed their existence to the economic activity driven by Torrington Bearings.
But Timken, which owned Torrington Bearings, began moving production offshore, a trend that spread throughout Connecticut. From 1985 to 2015, the small state lost nearly 137,000 manufacturing jobs.
For 40 years, Trump has complained that other countries have "ripped us off," although many globalists contend that the world is better off now because America let others take advantage of us.
In 1994, China was a relatively poor country that exported about $39 billion of goods to the United States. In return, China imported about $9 billion from America, primarily heavy machinery, aircraft engines, Boeing planes, and agricultural products. What did China do with the $30 billion trade surplus, all received as cash from American consumers?
China could only do three things, and it did all three. First, it spent some of the cash on anti-poverty programs, such as building homes for its peasants. Second, it invested some of the money in new factories and infrastructure so that it could produce and sell more to the United States. Third, it saved some of the cash. China's approach should not be surprising - it is what we do with our paychecks each month: we spend, invest in infrastructure (home, college, business), or save (buy FDIC-insured Certificates of Deposit).
Trump's point is that China could have spent more of its money in America, buying more than $9 billion worth of products, even if this would not have made it exactly trade-neutral. It is fine for wealthy nations like America to enjoy a trade deficit with developing countries so that they can grow.
However, China's actions were extraordinarily aggressive and unexpected. Unquestioned by America, it began to sell more and more to the United States, taking advantage of near-zero tariffs. Even with more money in hand, China refused to buy more products from America, proportional to what it was selling. China has consistently enjoyed a trade surplus with America, which, in 2024, sold only about $143.5 billion of products to China. China, however, exported $438.9 billion to America.
China also took its newfound wealth and invested in new factories to sell to the world. Today, China boasts the second-highest GDP in the world, next only to America.
China has also brought capital back to America, an economic consequence when a country enjoys a trade surplus. As of December 2024, China has used its savings to buy more than $760 billion of Treasury Bills, the second-largest holding among nations (after Japan). With such a large cash reserve, China has the power to move bond markets and the dollar's value.
China also has purchased American land and residential real estate. It has bought American companies - Smithfield Foods, in 2013, for $7.1 billion, and GE Appliances, in 2016, for $5.4 billion. Many of America's largest companies, such as Shell and BP, are owned by foreign allies, so this is not an issue. However, given that China spies on America and is a military power with enormous might, American national security concerns have restricted China from bringing back even more capital to buy up American assets.
In effect, America has helped power China's rise. Trump is right to hope to reverse America's actions by bringing manufacturing back to the U.S. and reducing dependence on China. However, his vision faces enormous challenges.
Rajkamal Rao is a columnist and a member of the tippinsights editorial board. He is an American entrepreneur and wrote the WorldView column for the Hindu BusinessLine, India's second-largest financial newspaper, on the economy, politics, immigration, foreign affairs, and sports.
