Trump Plays Dangerous Tariff Game – Could He Be Holding A Winning Hand?

P. Gardner Goldsmith | August 30, 2018
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How does one look at breaking tariff news? There is a couple of ways.

By, first, discussing the economic realities of tariffs themselves.

Tariffs are dangerous. Ethically, they represent political impositions over free individuals who should be free to buy what they want. The act of buying something is not aggressive or harmful to the property or rights of others – but the political act of punishing someone for making a peaceful purchase most definitely is aggressive, arrogant, presumptuous, and harmful.

Economically, tariffs are also bad ideas. They undermine the goal of human labor and invention: to make life easier, not harder.

As James Bovard has noted in his important book, “The Fair Trade Fraud”, tariffs typically harm resident consumers to the tune of eight times more than they help the specific native industry they are imposed to help. This is money that would and should stay in consumers’ pockets, to be saved, invested, or spent on other, potentially new, ventures and products. Tariffs stifle economies, growth, the trend towards better living standards, and they hand out special favors to politically-connected businesses.

So, many of us who deal with economics know that by imposing tariffs, Donald Trump might be winning some nativist points with special interests who want to block their lower-priced foreign competition, but he’s playing a dangerous game. He’s hurting consumers (and not just retail consumers, but also manufacturers who need foreign goods at low prices in order to compete), and might inspire retribution from other nations.

As a result, Trump’s series of executive orders on things such as foreign washing machines, solar panels, steel, and aluminum, and many more has seen US businesses sounding alarms. Even Alcoa, the US steel corporation, has been harmed, because it buys foreign goods to keep its prices lower and competitive.

And many consumers, including US business owners, know that Trump’s imposition of tariffs has seen the perennial and predictable response from other nations like China – they’ve increased their tariffs on US exports, thus harming some agricultural businesses in the US so much, President Trump is considering adding another layer onto the problem, a $12 billion subsidy for soy, corn, and other farming interests harmed by the foreign tariff.

President Trump cannot continue these policies and remain in this game indefinitely. One of the key factors that brought about the Great Depression was the Smooth-Hawley tariff. And it’s best to avoid extension of these kinds of taxes on imports, and to decrease or end them wherever possible.

But what if President Trump is aware of this? Sure, he appears to be appealing to nativist labor interests while overlooking US consumers, sure, he must know that worries that “foreigners will take over industries and then raise prices when they dominate” is not borne out by history or economic reality in a competitive market, so is it possible that he knows tariffs are bad mojo, and he plans to use them only as playing cards in a game of international trade poker, betting that other nations will lower their tariffs in response?

The history of tariffs does not favor such an outcome.

But perhaps Trump can buck the trend, take some winnings and end the tariffs before more damage is done.

As reported by Politico, EU Trade Commish Cecelia Malmstrom just announced that the multi-tentacled EU is ready to end all tariffs against US industrial products, including automobiles, a toweringly good thing. As they stand now, the EU imposes a tariff of 12.5 percent on US automobiles, while the US imposes a tariff of 2.5 percent on cars imported from Europe. But the us tariff on imported light trucks is 25 percent.

According to Malmstrom, agricultural matters are not being considered with the deal.

Agriculture would not be in the agreement, nor public procurement as it looks to today. 

Is it possible Trump’s tariff tear could bear some sweet fruit? One can hope. So far, it has been poisonous for consumers, and falls into the economic category of “what is seen and not seen”, whereby specific favored industries will highlight how they’ve been helped by the President, while other Americans pay more for the tariff.

But this EU move is a sign of hope. Perhaps President Trump can be the exception to the rule. Perhaps he will gain concessions and then get off the tariff treadmill. Cross your fingers, as you count your dollars.