Right On: Tariff tantrum or art of the deal

St. George News columnist Howard Sierer analyzes President Trump's recent stance on tariffs and the possibility he is using the threat of tariffs as an opening gambit for trade negotiations. "It’s certainly possible for the author of 'The Art of the Deal,'" Sierer writes, further evaluating trade policy in that light. Read more in the attached March 15, 2018, opinion column. | Composite image, St. George News

OPINION — You’ve got to hand it to Donald Trump: He seems dead set on honoring his campaign promises. Unlike most politicians, he meant what he said even when the promise was not a good idea.

Or was it?

Economists are almost unanimous in deriding tariffs as impediments to economic growth, bad for both the country imposing them and for their trading partners. Trying to foster or protect a domestic industry allows it to charge inflated prices and to operate inefficiently or become that way when shielded from foreign competition.

The United States was the preeminent world power at the end of World War II and stayed that way for decades by building on increasingly-free trade with our allies and emerging third world countries. The result has been unparalleled worldwide prosperity.

The familiar term “multinational company” was coined to describe the American companies – and workers – who benefited from international trade. You can buy a Coke in any country in the world.

Today citizens in otherwise impoverished countries like Bangladesh and Vietnam enjoy steadily improving lives – and Coca-Colas – thanks to the clothing and other products we import from them.

Free trade has significant political benefits as well. Nothing has contributed more to world peace than the worldwide rise of the middle class. Countries with growing numbers of middle class citizens have a vested interest in political stability and cooperative relationships with their neighbors.

So what’s not to like about international trade? Unlike Little League baseball where everyone gets a trophy, not every industry, not every company, and not every worker is a winner.

In particular, low wages in emerging economies give rise to exports of basic products, ones not requiring skilled workers or high tech manufacturing processes. Products like steel and aluminum were once dominated by the United States but are now produced worldwide.

Enter Donald Trump.

Trump has long believed that the U.S. is all too open to imports while many of our trading partners find ways to limit our exports. He has only to point to our long-running current account deficit for proof.

Our current account subtracts imports from exports as measured in dollars. We’ve been in the hole since the early 1980s and getting worse. That means we’ve been exporting dollars instead of goods and services. That can’t go on forever.

From Trump’s point of view, we’ve also been exporting the jobs that used to produce things like steel and aluminum. That’s certainly true.

So are tariffs a good way to bring those jobs back? Trump’s tariffs on imported steel and aluminum will help those industries but hurt industries that use these materials by making their products more expensive. In effect, Trump proposes to help some workers and industries at the expense of others.

Industrial policy is the term for government meddling like this and it’s a disaster. Central planners in socialist countries establish industrial policies like these and almost always make a mess of things. Think Russia and Venezuela.

Can Trump possibly believe that his administration’s vision of how U.S. industry should be structured is superior to free market forces? This industrial policy reminds me of Obama’s Clean Power Plan to massively restructure U.S. energy production for no measurable lowering of global temperatures.

But wait. Instead of actually intending to reshape the economy, is Trump using the threat of tariffs as an opening gambit for trade negotiations? It’s certainly possible for the author of “The Art of the Deal.”

After striking fear in the hearts of thousands of business and political leaders at home and abroad, Trump’s official announcement took a far more flexible and nuanced approach.

For example, he exempted both Canada and Mexico from immediate tariffs, our number one and number three sources of steel imports. But he was clear that their interim tariff-free status was dependent on results from the ongoing renegotiation of the North American Free Trade Agreement. Neither country’s economy is overly dependent on steel exports to the U.S. but tariffs would hurt.

Trump also spoke about treating Australia favorably, another ally. Importantly, he indicated that he anticipated negotiating more favorable trading relationships with a number of countries. Trump is on record as favoring country-by-country negotiations.

So where is this headed? Over the longer haul, we must find ways to balance our imports with our exports. But doing it one country at a time is a daunting and lengthy process. Each deal could take years to finalize and then might not have the intended results.

I prefer multinational partnerships like NAFTA and the Trans-Pacific Partnership we abandoned last year. It was signed last week, increasing economic integration in the signatory countries while leaving us on the outside looking in.

I’m an unrepentant free trader. I took heat for applauding Obama’s support of the TPP.

I prefer the undeniable benefits of worldwide economic growth over the narrow favoritism of some domestic workers at the expense of others. Trump’s “we need the steel and aluminum industries for national security reasons” argument falls flat when Canada and Mexico are two of our three largest suppliers.

I believe we should let markets sort out winners and losers. Our current account deficit will be solved over time as the value of a dollar depreciates relative to our trading partners. That will benefit exporters and punish importers.

And it will make you think twice about a vacation in Europe or Mexico.

Howard Sierer is an opinion columnist for St. George News. The opinions stated in this article are his own and may not be representative of St. George News.

Email: hsierer@stgeorgeutah.com

Twitter: @STGnews

Copyright St. George News, SaintGeorgeUtah.com LLC, 2018, all rights reserved.

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1 Comment

  • Lee Saunders March 16, 2018 at 12:38 pm

    T rump’s not a big student history or he might remember GW’s aborted attempt at raising tariffs. Time will tell.

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