2 Takes, 1 Issue: President Trump’s trade policy of ignorance

President Trump’s threat of tariffs on imports of Chinese goods began at midnight July sixth. Immediately thereafter, China imposed their own steep, retaliatory tariffs on U.S. goods putting immense pressure on American farmers and manufacturers. Trump promised jobs would come from this trade war, but due to massive tariffs on U.S. imports to Europe and China, companies are being forced to invest overseas. The trade imbalance is apparent, but the policy enacted is ignorant.

By exiting the Trans-Pacific Partnership (the TPP), the U.S. has forfeited the ability to change trade rules in favor of our country. Trump essentially left the best way to change the trade imbalances, in order to invoke a trade war that will hurt all parties. American citizens and industry are being hit hard by the retaliatory tariffs put in place by both China and the European Union (EU).

In trade wars, tariffs are a destructive weapon, and the destruction is only amplified by the retaliations and escalations on either side. Trump has imposed tariffs on about $200 billion worth of Chinese goods and said he is ready to increase it to $500 billion. However, U.S. goods also are being hit by the Chinese tariffs.

Soybeans are being hit with a 25 percent tariff causing Chinese buyers to increase orders from Brazil. It’s worth noting that eight out of the 10 soybean producing states voted for President Trump. Also on the list of Chinese tariffs are automobiles, which is putting pressure on U.S. auto manufacturers. Third, U.S. beef and pork exporters are being hit with tariffs by both China and Mexico. It seems that Trump does not recognize that trade and tariffs impact other countries.

The U.S. cannot win a trade war with China if it has horrible trade relations with countries in the European Union, Canada and Mexico. Countries do not want to continue trading with a nation that has imposed large tariffs on major imports. This makes life difficult for everyone involved in trade.

Trump’s economic policy comes from an underlying belief about trade. He sees trade as a zero-sum game in which the only goal is to export goods. If the U.S. imports a product, regardless of the necessity, we lose this made up battle with the other country. With the U.S. trade deficit being $568.4 billion as of 2017, we have lost this game. However, people’s reactions should not be anger that the U.S. is losing at trade, as President Trump would put it, they should be wondering why economists are not concerned.

It is important to understand that the deficit is made up of several macroeconomic factors including the value of a country’s currency, their investment rates and their relative growth rates. This is why, during the 2008 economic recession, our trade deficit decreased dramatically due to a falter of national consumption.

All that trade surpluses and deficits mean is that one country is giving money to another for goods. But President Trump is determined to end the U.S. trade deficit, most likely with a limited knowledge of economic principles.

Trump sees there are countries with a trade surplus, like Venezuela, and admires them. Why? Because, according to the World Bank, no one in Venezuela has the ability to buy anything foreign due to extraordinarily high tariffs on all imported goods. Which leads to the question of why President Trump is trying to model the prosperous U.S. economy on the collapsing economy of Venezuela.

Political economist Thomas Sowell has an excellent understanding of this concept on trade deficits in his book, Basic Economics.

“In general, international deficits and surpluses have had virtually no correlation with the performance of most nations’ economies. Germany and France have had international trade surpluses while their unemployment rates were in double digits. Japan’s postwar rise to economic prominence on the world stage included years when it ran deficits, as well as years when it ran surpluses,” Sowell said.

Unfortunately, because of Trump’s lack of knowledge about economics, Americans are hurting. The government had to issue a $12 million bailout for farmers due to their consumers not being able to afford the tariffs.

With the U.S. tariff on farm machinery from China, farmers are being hit on all sides and are not able to sustain their businesses. Major pork producers like Maschoff are worried about the agricultural industry crashing and truthfully stating that they are the casualties of the president’s trade war. Trump’s policy to bring jobs back to U.S. will lead to job loss for thousands of his citizens.

Looking back to the Bush administration in the early 2000s, we see the effects of placing high tariffs on imports. More than 200,000 jobs were lost between 2001-2003 because President Bush placed high tariffs on steel. Former Bush administration Chief of Staff, Andy Card, noted that the most worrisome part is that Bush’s tariffs were nowhere near the extent of President Trump’s.

Tariffs like these do not benefit an entire economy but instead benefit one industry while hurting many others. This is exactly what is being demonstrated and we will see the results in large-scale job loss for Americans and the strain that will put on the U.S. economy. No one wins a trade war.

Image courtesy of wccftech.

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