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3 major problems with Trump's protectionist attitude toward China

JP Mangalindan
Chief Tech Correspondent

There’s a major problem with the Trump administration’s protectionist attitude, according to Amy Karam, author of the “The China Factor.” Simply put, the US is already too dependent on China for trade and manufacturing, from the clothes we wear to the iPhones we text on.

“The whole idea is that with this competitive or protectionist attitude, it’s really just a short-term reactionary result, right?” says Karam, a consultant who specializes in global and competitive strategy and who has previously worked for Cisco (CSCO), Nortel and Alcatel-Lucent.

She added: “It makes people feel good in the short-term, but it causes inflation, higher interest rates and ultimately dilutes our purchasing power. We know Americans love to buy things and buy them at a great price. We love the volume.”

Indeed, others such as the economist Dambisa Moyo have also noted that protectionist trade policies could spur inflation. That’s because steep tariffs on products made overseas can drive up the prices of foreign products and domestic products, which have less competition from inexpensive foreign competitors. And the Fed may end up raising interest rates to stave off inflation.

“The protectionist attitude is understandable and often taken by certain nations when they feel threatened,” explained Karam, who pointed to China’s GDP annual growth in recent years, which consistently outpaced the US. Indeed, last year alone, China’s 6.7% annual growth rate outpaced the US’s comparatively sluggish 1.9%.

Donald Trump wants to impose tariffs on foreign products to encourage US manufacturing.

“With this growth comes a power shift,” Karam added. “The cooperative spirit is being checked, if you will, because countries like the US, Canada and Western European countries are feeling that they don’t have that influence anymore … What happens is there’s a protectionist reaction in that they want to just hold down the fort. They want to start playing hardball. They want to become more competitive. They want to do all the manufacturing at home. People are complaining that they want their jobs back.”

That certainly helps explain Donald Trump’s surprising election to presidential office last November, after he spent his campaign promising to bring manufacturing back to the US. Rather than potentially take a more hardline protectionist approach as Trump proposes, Karam recommends the US embrace the concept of “co-opetition,” the collaboration between business competitors with the goal of mutually beneficial results.

“I’m not saying that either nation or any of the nations are going to be really great at it, but at the end of the day, there are supply chain efficiencies to be gained from overseas and there’s market access questions that need to be addressed,” Karam contended.

Difficult? Sure. But probably more doable — and far more realistic — than say, having Apple (AAPL) transfer a significant chunk of its iPhone supply chain and operations from China to the US.

JP Mangalindan is a senior correspondent for Yahoo Finance covering the intersection of tech and business. Follow him on Twitter or Facebook.  

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