Trump's Real Tariff Strategy
Trump may be calculating that the U.S. can absorb a mild hit if it means getting our trading partners to change their ways.
The trade wars that economists predicted would follow President Trump’s raising of tariffs against various nations and trading blocs around the world have officially begun.
China announced last Friday that it was matching $34 billion in U.S. tariffs on Chinese imports with an equal level of tariffs on U.S. goods coming into China. The American imports targeted include soybeans, lobsters, SUVs and whiskey.
China said it is responding to 25% taxes levied by the U.S. on Chinese industrial products coming into America. The Chinese economic ministry claims the Trump administration is guilty of “trade bullying” and that the U.S. had begun the “biggest trade war in economic history.”
Trump probably takes that latter statement as a compliment, but for the Chinese to accuse the U.S. of being trade bullies is more than a bit hypocritical.
China reached its status as second-largest economy in the world through a lot more than just having a large, hard-working population. Currency manipulation, breaking trade agreements, rigging contracts with foreign companies, industrial espionage — China’s done it all. The problem for the Chinese now is that the president of the United States is looking to do more than just shake his fist.
Trump has stated since his campaign that he wanted to punish the countries that have taken unfair advantage of America in international trade. That list includes Canada, Mexico, the European Union and China. All these nations are big trading partners with the U.S., but they have all placed tariffs and trade barriers to keep America’s strongest companies from being able to compete in their markets while prying open America’s market and making it accessible to cheaper foreign goods.
This has been going on for years, but economic globalists, at least three previous presidents and many members of Congress have done little more than lament America’s trade deficit with a shrug, as if to ask, “What are ya gonna do?” Well, Trump came up with an answer to that half-baked question.
It’s hard to know if Trump’s tariffs on foreign goods will have the desired effect of motivating our trade partners to play fair. There are many economists who are against tariffs under any circumstances, even if the alternative means America getting hammered by trade agreements that tilt in favor of foreign partners. These people claim that we should use the World Trade Organization to press our case for better trade practices.
The WTO has supported the U.S. consistently in its trade disagreements with China, but the process is long and arduous and its enforcement regime moves painfully slow. China has learned to play the bureaucratic wrangling of the international body to its advantage, changing its tune to suit any given situation.
The media has portrayed the coming trade wars as Trump’s fault. It conveniently leaves out the part of the story that reveals Trump is responding to foreign tariffs and trade restrictions, not causing them. The media complains that Trump’s actions will bring an end to free trade. This claim is meant to gin up anti-Trumpers, many of whom don’t support free trade anyway. Besides, we don’t really have free trade now. America operates in a sea of tariffs, fees and taxes that make international business needlessly more complex and costly than it needs to be.
This is not to say that Trump’s actions don’t have the potential to cause harm. International stock markets and consumer prices on goods in affected industries are stable so far, but the real trade war has only just begun. Many analysts note that they have already baked in some of the cost of a trade war between the U.S. and its partners, but no one can predict what will happen if this drags on for weeks or months.
Trump supporters in the farm belt are still with the president, counting on his business skill and his courage to face down China to get them through. Again, their views may change if things drag on and they start to feel the heat from higher prices and shrinking foreign markets. And these people may feel it first. Foreign countries are making a point of retaliating against Trump’s tariffs by targeting industries in states he won in 2016.
Any trade policy that costs American jobs is a bad policy, but so is one that maintains a meager status quo that does not grow the U.S. economy. That’s the policy we’ve had for several years, and Trump wants to change that. He has an advantage in that the American economy is strong and growing right now. He may be calculating that the U.S. can absorb a mild hit caused by a trade war if it means getting our trading partners to change their ways.
There is no good time for a trade war, but if it has to happen, then now may be that time.