China’s trade practices pose a barrier to broadly based American prosperity, and in his 2016 presidential campaign, Donald Trump effectively railed against the indulgence of those practices by past administrations. Trump’s own inept trade negotiations, however, have not reduced such practices. Rather remarkably, Trump has managed to significantly worsen the United States’ trade deficit with China: U.S. imports from China are up while U.S. exports have dropped precipitously.
State subsidies for companies that export, tariff barriers, intellectual property theft, forced technology transfers, and similar trade pathologies are deeply rooted pillars of China’s authoritarian governance. And despite offering only modest prospects, there are realistic policies for recalibrating Chinese mercantilism, as David Dayen, among others, has identified
The problems inherent in U.S. trade policy run deeper than Trump’s ineptness. They will likely persist, and Trump will fail to meet his 2016 promises to American workers, unless and until U.S. corporate governance is upgraded. American corporate boards must shift their goal to prioritize the prosperity of local communities and employees as well as shareholders.
To be sure, Trump’s China tariffs have caused U.S. firms to vote with their feet. But rather than surging homeward to build factories in Wisconsin or Michigan, at least 50 American firms are fleeing China to relocate their plants in that nation’s lower-wage neighbors, most particularly Vietnam. American-style shareholder capitalism systematically discourages the building of a domestic production base for domestic consumption or for exports to China or anywhere else. Instead, corporate boards offshore production with abandon. The U.S. trade balance with China makes that unmistakably clear: In 2017, Americans imported $526 billion worth of goods from China, while exporting only $130 billion worth of goods there.
Other nations with comparably advanced economies have avoided this level of economic dysfunction. When it comes to our trade balance with China, for instance, we vastly underperform the nations of Northern Europe.
Denmark, Germany, the Netherlands, and Sweden have only slight bilateral deficits with China, because their major corporations prioritize domestic production rather than American-style offshoring. Their export prowess to China (and globally) easily outpaces ours. German exports to China ($98 billion in 2017), for instance, approached U.S. levels, though their economy, as measured by GDP, is barely one-sixth the size of ours. Their exporters outperformed Americans by a factor of four or five. Dutch exporters outperformed Americans by a factor of 2.5. Swedish exporters outperformed Americans by a factor of two. And Danish exporters outperformed Americans by nearly 50 percent.
What sets these nations in particular apart from the U.S. is the codetermination governance of their corporations—that is, their firms’ boards of directors include employees, who are chosen by their employees. Their corporate goals, accordingly, bolster their domestic economies and their own employees, rather than just their shareholders.
Several leading Democrats, including Senators Tammy Baldwin of Wisconsin and Elizabeth Warren of Massachusetts, have proposed requiring U.S. corporations to divide their boards between shareholder and worker representatives. The benefits to such a change are clear. One new National Bureau of Economic Research analysis finds that firms governed by codetermination invest more domestically than U.S. firms. And by investing more in capital-intensive production, they’ve been able to seize and service markets overseas for their products. Investing more in upskilled domestic production has also translated into more highly skilled national workforces than ours. That, in turn, has led to faster wage growth and higher wages, especially benefitting noncollege men and women, all across Northern Europe. OECD data affirms that both earnings and employment of noncollege men and women in those nations, all of which practice codetermination, are well above American levels.
America’s trade relations with China need a fundamental recalibration targeting its multiple pathologies. But one pivotal solution to our perennial trade deficits and to stagnant wages hinges on upgrading American corporate boards with codetermination.