Economy

Trump Seeks to Mitigate Impact of Tariffs

He announces $12 billion in government aid to farmers who've been hit by his tariffs.

Thomas Gallatin · Jul. 25, 2018

President Donald Trump announced Tuesday that he would be giving American farmers $12 billion to help offset the cost of tariffs. The Leftmedia pounced, framing the announcement as Trump responding to a problem he did not anticipate. Wrong. This was part of his strategy.

Most people have been counseled from a young age to accept the fact that life isn’t fair. But for Trump, this reality seems only to have propelled him into action rather than merely stewing in hopeless resignation. One of the biggest problems Trump is working to address is the long-running trade imbalance the U.S. has experienced with various nations, but specifically with China and the European Union. From the very beginning of his campaign, Trump railed against the raw deal the U.S. was getting with many of its biggest trade partners. For one thing, he pointed to increasing trade deficits that he argued hurt American workers in the manufacturing sector.

Trump’s focus on imbalanced trade deals may have been the primary factor for Rust Belt voters to swing these longtime Democrat strongholds into Trump’s column. He promised to bring jobs back and to make these Rust Belt manufacturing states great again.

The president’s agenda of deregulation and tax cuts has certainly jump-started the process. The economy is clearly speeding into action after eight years of stagnation. But for Trump, the problem is more than just over regulation and high taxes; he sees unfair trade deals as a major economic problem for the country — a problem he feels compelled to address. And for Trump, this is a problem worth going to war over — a trade war, that is.

Some conservatives and Republicans part ways with Trump on trade, the latter as a matter of political preservation in regions hit hardest by retaliatory trade tariffs. They claim he is practicing economics like a Democrat, using the power of the state to pick winners and losers. Some of that criticism is legitimate.

However, the question remains: Is the issue of growing trade imbalances a significant enough problem that it demands addressing? In other words, is doing something better than doing nothing? This is where the legitimate criticisms over Trump’s actions lose steam. How does one go about addressing and solving the real problem of American workers losing out to foreign trade deals that are intentionally stacked against them?

On Tuesday, prior to today’s scheduled meeting with European Commission President Jean-Claude Juncker and EU Trade Commissioner Cecilia Malmstrom, Trump stated, “I have an idea for them both. Both the U.S. and the EU drop all Tariffs, Barriers and Subsidies! That would finally be called Free Market and Fair Trade! Hope they do it, we are ready — but they won’t!” He was right to call them out.

Why won’t EU leaders agree to actual free trade? Because European nations, to varying degrees, are socialist states where the government provides increasing amounts of welfare for the citizenry. Much of the EU’s economy is fundamentally tied up by income redistribution, and heavy regulations are designed to create an environment where residents are dependent upon the state for their livelihoods.

Similarly, the Chinese economy uses some capitalist principles but is still ultimately controlled by the communist government. That government has long engaged in currency manipulation, intellectual property theft, and other nefarious economic practices in order to tilt the trade landscape in its own favor. Trump’s tariffs are designed to combat these abuses of the American worker and American business. Unfortunately, the consequence — which was not a surprise to Trump — is the inevitable retaliation by China and the EU, which are loathe to give up abusive practices.

One major advantage the Chinese have over the EU is that the communist Chinese leaders face no political recourse from the Chinese people over their policy decisions. However, they are able to politically target American goods in congressional districts and states that impact Trump and Republican constituencies, in effect hacking our elections for their interests. One of the biggest Chinese targets is American agriculture.

Which brings us back to that $12 billion. To mitigate some of the consequences of this battle over trade, Trump announced $12 billion in government aid to American farmers. In so doing, Trump has invited the criticism not just of the Leftmedia but of many conservatives, who rightly view it as welfare and a band-aid for a self-inflicted wound. Yet he is also signaling to both China and the EU that he is serious about getting a level playing field. As Rabobank analyst Michael Every noted, “Trump is making clear with the subsidy that he isn’t going to back off. Rather, he’s settling in for a slug-fest economic war of attrition until he gets the deal he wants.”

Will Trump’s determination to balance the trade field pay off in the end? The answer to that question may determine his political future come 2020, if not sooner.

(Edited.)

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