Jack Ma is an engaging personality. In 1994, during a visit to the United States, he decided to explore the internet for the first time. In a moment of motivation, he typed in the word beer into a search engine.
The outcomes of that search were so impactful that Ma returned to China and promptly initiated his first internet venture. After several attempts, he struck gold with Alibaba, ultimately amassing a net worth of $27.1 billion USD—over 7.3 times that of President-elect Trump. It’s a remarkable success story for a former school teacher from a modest background.
Ma’s approach to business is both clever and relaxed. In 2014, after enjoying a few drinks, he purchased China’s most beloved soccer team from fellow billionaire Hui Ka Yan. The deal cost him $192 million.
“By accident, I got him drunk,” Yan recounted of their deal. “I told him my Evergrande soccer team is planning to issue shares and raise money for strategic development. He agreed, and we concluded it in just 15 minutes.”
A fascinating aspect of life is how money travels—who receives it, and to whom it is given. For nearly three decades, the flow of money has predominantly moved from west to east without interruption.
How to Create One Million New U.S. Jobs
On a recent Monday, Jack Ma visited Trump Tower in New York to discuss business with President-elect Donald Trump. Their main topic was how to redirect the flow of money back to the West.
“Jack and I are going to do some great things together,” Trump stated after their meeting. They reportedly aim to create one million new jobs in the U.S.—an ambitious endeavor.
The blueprint for this initiative involves a straightforward two-step plan that, perhaps, could have been drafted on a cocktail napkin.
Step one is to enroll one million small and medium-sized U.S. businesses and farmers onto the Alibaba platform. Step two relies on Ma’s estimate that each participating business will hire an additional worker due to increased commerce.
This is how Ma and Trump propose to generate one million new jobs in the U.S. Given their track records, one might wonder whether this plan holds promise.
American consumers are known for their desire for affordable Chinese products. Conversely, Chinese consumers are increasingly showing interest in U.S. goods. They are already purchasing American products online.
“U.S. produce available on Alibaba’s platforms includes Pacific Northwest cherries, Washington State apples, and Alaskan seafood.” It’s quite surprising.
Trump’s Plan to Close the Trade Deficit with China
The United States has maintained a current account deficit—where imports exceed exports—for the past 26 years. In the third quarter of 2016 alone, this deficit reached $113 billion. This translates to the U.S. sending approximately $1.25 billion more daily to other countries than it receives through trade.
A significant portion of this trade deficit likely stems from China. While selling cherries and apples on Alibaba to Chinese buyers might help mitigate the deficit, it is unlikely to substantially close the gap.
Another method Trump has proposed to address the trade deficit includes increasing tariffs on Chinese imports from around 3 percent to 45 percent. According to Gene Ma, chief economist for China at the Institute of International Finance:
“The direct impact on GDP would be significant. The value added by exports accounts for about 10 percent of China’s GDP, with the U.S. representing about one-fifth of China’s exports.”
However, if Trump follows through with this tariff strategy, China may retaliate with its tariffs on U.S. imports. Thus, while Trump may effectively reduce the U.S. trade deficit with China, he risks stifling trade and reducing overall wealth—a convoluted approach to solving a problem.
As economist Henry Hazlitt articulated many years ago in Chapter 11 of *Economics in One Lesson*, “Who’s ‘Protected’ by Tariffs”:
“The effect of a tariff is to alter the structure of American production. It modifies the number of occupations, the types of jobs available, and the relative scale of one industry compared to another. It enlarges the industries in which we are less efficient and shrinks those in which we excel. The net result is a reduction in American efficiency, as well as a decline in efficiency in the countries we would otherwise have traded with more freely.”
In conclusion, the measures being discussed to address the trade deficit with China and create U.S. jobs highlight the complex interplay of global trade. Whether these plans will succeed remains to be seen, but they certainly reflect the dynamic nature of modern economic relationships.
Sincerely,
MN Gordon
for Economic Prism
Return from Trump’s Plan to Close the Trade Deficit with China to Economic Prism
