“Trade wars are good
and easy to win,” President Trump famously tweeted
in March 2018 as he fired the first shots in a tariff war heard round the
world. “It’s easy.”
A year later, the president is singing a different tune. While
Mr. Trump’s trade strategy has resulted in some minor changes to NAFTA that may actually make
the trade agreement worse for American companies, the Trump Administration
has been at loggerheads with America’s largest trading partner, China. Although
the Chinese did come to the table, a deal has proven elusive. Now President
Trump is holding out the possibility that tariffs on Chinese imports may not be
removed even if a deal is reached.
“We're not talking about removing them, we're talking about
leaving them for a substantial period of time,” Trump
told reporters on Wednesday. “Because we have to make sure that if we do
the deal with China that China lives by the deal because they've had a lot of
problems living by certain deals.”
The president did not specify when the Administration would
consider removing tariffs or whether negotiations are being delayed by Trump’s
desire to keep the tariffs in place. Some members of the Trump Administration
have favored the idea of removing the tariffs in stages and reapplying them if
China fails to follow through on the deal. Trump’s original tariffs on steel
and aluminum were applied under a law that allows the president to tax imports
for national security reasons, but the president also did not address whether
these national security concerns were being resolved by the talks.
US trade negotiators are due to meet with the Chinese in
Beijing next week and Chinese representatives will come to Washington in April
to continue the talks, but keeping tariffs in place will probably be a hard
sell for the Chinese.
In some cases, the Trump Administration’s trade victories
are illusory. In December 2018, when President Trump
touted China’s reduction in auto tariffs from 40 percent to 15 percent, he
failed to note that they had only increased the tariff on US autos to 40
percent after the Trump Administration had increased the tariff on Chinese
autos from 2.5 percent to 27.5 percent. The Chinese concession was limited to three
months.
Underlying the entire tariff issue is the misunderstanding that
the tariffs are being paid by the Chinese. Tariffs, which are just another way
of saying “taxes on trade,” are no different than any other tax in that they are
shifted from the seller to the end users, who in this case happen to be American
consumers and businesses who use Chinese products. The situation is no
different than a sales tax or Obamacare’s tax on medical devices.
Even though sales taxes are technically paid by businesses
who sell things, in reality, the business merely serves as the government’s tax
collector. When the business sells a widget for $1, it collects the cost of the
item plus the associated taxes from the customer, who is out of pocket about
$1.06, depending on tax rates where the transaction takes place.
The situation is the same with tariffs except the numbers
are much larger. Mr. Trump’s tariff rates on Chinese goods from range as
high as 50 percent. Depending on the item, for every dollar that Americans
spend on Chinese goods, they now must pay up to $1.50. State and local sales
taxes still apply also. Items
affected include a wide range of products from clothing to beer to washing
machines to solar panels to cars.
The negative effects of the tariff war have not been limited
to the Chinese. When China placed retaliatory tariffs on US farm exports, the
Trump Administration pledged $12
billion in aid to farmers. However, since the US government already spends
more than it takes in, the farm bailout contributed to a ballooning
deficit and national debt. In effect, the Trump Administration borrowed
from China to pay off US farmers who couldn’t sell to China due to the trade
war.
In addition to the higher prices on imported goods or
American-made goods with imported components, the trade war has also caused many
companies to close doors, lay off workers, or delay growth. Harley Davidson’s
decision to move some production to Europe is one of the most well-known examples, but there are many other
stories that are known only to economists, workers, and their families. For example,
Mid
Continent Nail Corp. of Missouri has been crippled by Trump’s steel tariffs
and may be driven out of business, killing more manufacturing jobs.
Ironically, much of the benefit of President Trump’s tax
reform is being offset by his tax increases on trade. The president’s trade war
and his crackdown on immigration at a time when the US is experiencing a labor
shortage may push many voters toward the Democrats for more
business-friendly policies.
Mr. Trump’s recent comments indicate that the pain for
American consumers, businesses and workers will not be going away soon. President
Trump’s warning may be aimed at the Chinese, but it will also be heard by the
Americans who are footing the bill for his trade war.
Originally published
on The
Resurgent
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