A tariffic guy: Trump, China, and the impact of tariffs

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Donald Trump’s meteoric rise from real estate mogul to president was due in part to his promise to fundamentally alter the United States relationship with China (pronounced Ji-nuh). Trump, ever the pragmatist, promised to cut the United States’ trade deficit with,  and apply a new set of rules to China by any means necessary. One course of putting China in its place that he proposed is the application of heavy tariffs on Chinese exports to the U.S. This is a traditionally unconservative move. Conservatives usually opt to support free trade, while Democrats favor a more pro-worker protectionist approach to international trade. This is undoubtedly a message that resonated with the traditionally Democratic rust belt states like Michigan, Ohio and Wisconsin, each of which went for Trump in 2016.

Like with nearly every other campaign promise, Trump is going to follow through with his pledge to tariff select Chinese exports to the U.S. This is causing some in both parties to balk. Non-reciprocal tariffs have not been at the center of American political discussion since the 1930s, when they triggered the Great Depression and were left on the ash heap of history. This begs the question; is tariffing China an effective means of cutting the trade deficit, and furthermore does it really matter?

Trump confidant Kelly-Anne Conway told Fox Business that the 50 billion in tariffs will stop China from “screwing” the American worker, and stealing U.S. innovations. It’s true, China is screwing the American worker. Since its entry into the WTO in 2001, China has poached over 70,000 factories from the U.S., according to Politifact. It is impossible for American manufacturing firms to compete with the prices of companies facing no minimum wage, and little to no environmental regulations. Even with the added cost of transportation across the Atlantic, its still significantly cheaper to manufacture and assemble goods in China as opposed to building them at home. Allegedly, the tariffs would narrow the cost gap in manufacturing.

The International IP Index, a group that ranks the commitment of a country to protecting intellectual property, ranks China 25/50. China is certainly not the most notorious idea thief, but among major international players, only Russia is ranked lower.

The President’s assertions are correct. China is taking advantage of the U.S. in a major way. But the question remains, are tariffs the correct response? Studies show that Chinese middle class is rapidly expanding. This middle class is a key customer for U.S. farmers, electronics firms, insurance companies, and auto manufacturers. Some theorize that like every developing nation, China will eventually adopt a minimum wage, stricter environmental standards, and consistently enforced intellectual property laws. Clearly, President Trump believes he needs to take action on behalf of the American people to hasten these changes.

Tariffs are like nuclear weapons. The threat of their use is the greatest force for peace in the world today. Major powers have not gone to war in this country since the invention of the nuclear bomb. The threat of a tariff is an extremely powerful bargaining chip in the hands of the leader of the world’s largest consumer nation, and I’m glad he’s using it. Ronald Reagan, pied piper of free trade, employed this tactic against the Japanese when Yamaha motorcycles were flooding the U.S. market at markedly lower prices. Reagan sent Vice President Bush to Japan and threatened the Japanese with an across the board tariff on Japanese exports. They responded by self imposing a quota on exports of motorcycles to the U.S., and Harley Davidson thrived.

If properly applied, Trump’s foreign tariffs, coupled with deregulation at home, could boost domestic manufacturing, and force the Chinese into the future. However, if they call his bluff, and let the tariffs take affect, or even counter the U.S. with massive tariffs of their own, expect a period of high inflation and lowered production at home.

 

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