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Trump is wrong on tariffs

REUTERS/Jonathan Ernst
The Chinese government’s retaliatory tariffs have been concentrated on agricultural exports from the heartland of Trump’s vote.

Amid the “fire and fury” of the first year of Donald Trump’s presidency, one consistent source of good news has been the U.S. economy. Unemployment has continued to fall to historic lows, growth has reached rates which “experts” were claiming to be impossible, and the stock market has boomed. A strong economy might even break the ‘blue wave’ in November.

John Phelan

And then the administration started to ramp up a trade war. It is in danger of throwing away its trump card.

Free trade is a positive sum game, which makes both parties batter off. They wouldn’t do it if it didn’t. Minnesota, for example, produces more soybeans than it needs. Via trade, Minnesotans are able to exchange the surplus soybeans for other things, such as electronic goods from China or clothes from Vietnam. Trade works like a magic machine that turns things you want less into things you want more.

Trade restrictions are a zero sum game, making some better off at the expense of others. The recent steel tariffs, for example, will help U.S. steel producers, in the short run. But what about U.S. steel consumers? Companies such as Smyth in St. Paul, which manufactures cans for craft breweries, will see the cost of their inputs rise. They will either have to cut into their profits, pass the cost on to the consumer, or cut back on production. The last time the U.S. imposed steel tariffs in 2002, it cost an estimated 200,000 jobs among steel-using businesses. What the steel producer gains, the steel consumer loses.

You will often hear people tell you that they do support free trade, as long as it also fair trade. Of course, who is better placed to judge the fairness of a trade than the trading parties? There is no doubt that China’s government has, in recent years, pursued policies that have given its exporters an advantage. The Chinese people have been taxed to subsidize Chinese producers. The Chinese central bank has driven the country’s currency down to keep exports cheap, which has also imposed a cost on the Chinese people by lowering the purchasing power of their wages. The Chinese, who have a GDP per capita of $16,600, are subsidizing the consumption of Americans, whose GDP per capita is $59,000. You can see why the Chinese public might be angry about this, but you might well be wondering why Americans should be looking this gift horse in the mouth. The answer to bad Chinese policy (subsidies) is not to impose bad policy in America (tariffs).

The Chinese government are not fools. They might not practice democracy, but they do understand it. Their retaliatory tariffs have been concentrated on agricultural exports from the heartland of Trump’s vote. A trade war will leave losers all across the United States, including here in Minnesota. This November, a few congressional Republicans might end up victims too.

John Phelan is an economist at the Center of the American Experiment

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Comments (6)

  1. Submitted by Robert Moffitt on 04/17/2018 - 09:22 am.

    If a trade war with China has a silver lining, this is it

    “This November, a few congressional Republicans might end up victims too.”

  2. Submitted by Neal Rovick on 04/17/2018 - 09:34 am.

    Trump’s tax stimulus ?First

    Trump’s tax stimulus ?

    First quarter GDP growth estimate expected to be less than 2%.
    https://www.frbatlanta.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

    6 months forward confidence in business conditions drops 26 points into recession territory. Current conditions drop by almost 8 points.
    https://www.newyorkfed.org/survey/empire/empiresurvey_overview.html

    No need to comment on the effect on the stock market and 401K.

    Gas prices to get to about $ 2.90/gallon (How’s this for some double talk ““Expensive crude oil prices, unrest in the Middle East, strong domestic demand, record production rates and global oil supply surplus have created the perfect storm to drive spring gas prices toward new heights,” said Jeanette Casselano, AAA spokesperson. “Consumers can expect gas prices to increase another 5 to 10 cents this season, but the national average is not expected to reach the $3 mark.”—-“record production and a global supply surplus” contributing to higher prices ???)

    Future’s looking so bright–gotta get some sunglasses.

  3. Submitted by Tim Smith on 04/17/2018 - 12:52 pm.

    Toes in the water, head in the sand

    Still, these growing downside risks together with a weak start to the year should not obscure the overall strength of the US economy. The Conference Board measures of consumer and CEO confidence remain near ten-year highs, and the unemployment rate is at its lowest level this century. Together with the stimulative effects of tax cuts and more government spending, the most likely outlook remains a robust one, with growth still reaching 2.8% for 2018 and 3.0% in 2019.
    https://www.conference-board.org/data/usforecast.cfm

    Obama left office with the worst growth rate in history. Tax cutes have massively fueled the economy, that doesn’t mean every quarter will be perfect, but the future is quite bright.

    Gather ye negatives as ye may, that is the life you lead.Those constant scare tactics worked really well in 2016, nice to see lessons learned.

    BTW, my 401k is doing awesome.

    • Submitted by Neal Rovick on 04/17/2018 - 10:35 pm.

      Yup, pulling a country out of the ditch of the 2nd worst economic collapse is a lot harder than aiming it for the next ditch.

    • Submitted by Howard Miller on 04/18/2018 - 10:44 am.

      not convinced by the data you cite

      Seems that W Bush handed off a deep recession to Obama, who – with bipartisan support – helped the economy recover with a modest Keynesian style stimulus. Not sure how W’s growth rate exceeded Obama’s ( re your assertion, “Obama left office with the worst growth rate in history”) in light of that.

      This article seems to report data that seem sound: https://www.usw.org/blog/2017/bush-vs-obama-on-the-economy-in-3-simple-charts-updated3

    • Submitted by Pat Terry on 04/18/2018 - 08:10 pm.

      Nonsense

      The claim that Obama had the lowest growth rate in history is an outright falsehood. Patently false Economic growth, including the stock market, has actually slowed since Trump took over. Fortunately, its taking awhile for Trump to run the Obama recovery into the ditch.

      And tax cuts “massively” fueling the economy? Anyone with even a basic understanding of economics knows tax cuts are an extremely poor economic stimulus. Most of the tax savings are going to foreigners and I’ll we’re getting is record deficits.

      Trump is a failure as a businessman. If he had simply put his inherited money into mutual funds, he’d be worth many times what he is today. Instead he’s had failed business after failed business and has to rely on Russian banks to prop him up. And now with his tarriff nonsense, he’s going to hurt our economy. Even his Republican apologists are freaking out.

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