Tuesday, March 6, 2018

The Real Goal of a Trade War Threat

We're all aware of the tweet-storm last week and this week already, driven by President Trump's stated intent to apply tariffs to imported steel and aluminum as a means of protecting the American industries in those areas.

This one, I think, may be different.

Let's take a look at this in context, and a lot of context is needed.  First, there is no doubt that President Trump "started" this most recent development, but the overall situation long predates his presidency.  Asia and the European Union (as well as our neighbors to the north and south, but that's for another piece) impose high tariffs on imported goods, such as automobiles, which is why you see so few American-made cars, relatively, in those places, and why there is a black market in high-end American cars in China.

The USA, on the other hand, lets European and Asian cars (and I'm just using cars as an example) in with a far lower tariff than is applied to our goods going there.  We can import, but we can't export easily when our products, with added duties, cost so much overseas.  And the same applies to goods like steel and aluminum, which we can import easily but face high tariffs abroad that prevent our exporting these products.  President Trump calls that "stupid" because, well, it is.

The trade deficit, the difference between what the USA exports and the value of its imports, is gargantuan.  Now, we expect that to some degree, because we're a huge consumer with a huge economy, and we consume everything here, except maybe Vegemite.  But a massive trade deficit means that our dollars are leaving the country, net, and artificially affects the value of our currency.

Most importantly, barriers to exporting hurt the USA economy by damaging manufacturers who are cut out of the world marketplace.  They can't sell abroad, so they can't hire; and since importers of the same products don't have high tariffs here, they can compete too easily with USA-made products and put American factories out of business.  Those American companies can only fight it by building factories abroad to avoid the tariffs, if they want to sell to Europe and Asia.

As on most issues, Donald Trump is far different from presidents in the past on this.  Obviously, as a businessman who has been buying steel for his buildings for years, he is acutely aware of those prices and why they are what they are.  But he is no longer a businessman; he is the President of the United States, and he needs to determine the solution that works best for the entire country.

The crying and screaming last week about a "trade war" missed the point.  The "point", at least in this administration, is the specific outcome that we would like to have as a nation

You see, although President Trump stated that he would be planning to match tariffs -- you charge 40% to import U.S. steel, well, we will charge 40% to your nation's steelmakers to sell it here -- that's not what the president wants.

No one wants big protectionist tariffs on both sides.  The outcome that President Trump actually wants is for comparable tariffs to be on both sides, and he wants that done not by our raising our tariffs but by the EU and Asia lowering theirs.  "Lowering", as in down to something that puts each nation's manufacturers on a more comparable footing.

I'm pretty sure that even though the president has said he will raise U.S. tariffs to the level of the protectionist foreign ones, that is not what he wants -- he is hoping that his is the first decisive action, in a sequence that will actually lead to major cuts in foreign import duties in the EU and Asia.

Donald Trump, ever the negotiator, has put his first offer on the table.  "I am willing to make it very difficult for you to sell your products to the USA and crush our industry", he is saying.  "And I will absolutely do that."

We have to hope that someone is in the ear of the fat globalists in the EU, telling them that they're dealing with a different President.  "He may be a lot different from you, but you can work with him.  He is looking for fairness, and even in your ivory globalist tower in Brussels, you can see that your duties are grossly protectionist."

I have a feeling the Chinese already know that, and slowly but steadily, their tariffs will ease down and their ports will open.  They're not stupid, and the feelers from Beijing to Washington are probably already, quietly, very quietly, on their way.  The EU leaders, unelected types that they are, may be far too full of themselves to see it.

But Donald Trump is looking for lower duties from them, not higher ones here.  Remember that I said that, when this kerfuffle is over.

Copyright 2018 by Robert Sutton
Like what you read here?  There's a new post from Bob at www.uberthoughtsUSA.com at 10am Eastern time, every weekday, giving new meaning to "prolific essayist."  Appearance, advertising, sponsorship and interview inquiries cheerfully welcomed at bsutton@alum.mit.edu or on Twitter at @rmosutton.

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