Flaws in Trump's Trade Policy
SINA NEMAZI: This past spring, the Trump administration decided to place tariffs on cheap Chinese steel, a good that China specializes in. The administration’s aim was not only to help American steelworkers, but also to act as a political maneuver to push China to import more American goods because the U.S. continues to sit in a trade deficit with the world.
In the U.S., the steel industry struggles because consumers buy cheap imported steel from China. As a result, American steel has a fall in output, causing massive layoffs for steelworkers. Chinese steel tariffs are not new phenomena to the political atmosphere. We have seen past Presidents, like President Obama in 2012, put tariffs on Chinese steel before key election years in order to sway voters in key swing states; however, the steel tariffs set by President Trump have established a new precedent.
The purpose of steel tariffs is to protect workers in the sector that is hurt by free trade. These sectors are called import-competing sectors. Economic theories, such as Import-substitution Industrialization, believe that developing these weak sectors (infant-industries) is important for growth in a certain country’s economy. However, the tariffs actually hurt more people than they help.
From Trump’s tariffs, U.S. consumers will take a blow because they will have to buy more expensive American steel. As a result, the price of many goods in the U.S. will rise as well because input prices rise. Some goods that we will see rise in price can include metal baseball bats or even automobiles. Furthermore, these tariffs will also hurt Chinese exporters, especially because exports are a key makeup of China’s nominal GDP output.
As a result of Trump’s decision, the World Trade Organization has called China to act in retaliation and put tariffs on key U.S. exports. These Chinese tariffs on U.S. goods will result in a heavy blow to all export-oriented industries in the U.S. This action will lead to a fall in output in the U.S. economy, resulting in unemployment for many and a drop in the stock market.
Unfortunately, these were not the only downfalls of the Trump Trade Policy. Trump’s goal was to push China to import more U.S. goods in order to fix the huge trade deficit between the two countries. He did not realize that import tariffs lead to autarky in the United States, meaning the U.S. does not export its goods and cannot import cheap goods from other countries, resulting in buying more expensive domestic goods at lower quality. Trump should enter the U.S. into more regional free trade agreements, like NAFTA and the TPP, in order to increase exports.
As Trump and China continually played a negative-sum game of placing more and more billions of dollars’ worth of tariffs on one another, Trump decided to place steel tariffs on the EU, Mexico, and Canada. At first, China had agreed to import more U.S. goods, but Trump pushed the limit.
After Trump had decided to put tariffs on key trade-allies to the United States, his decisions hurt the United States moving forward. He broke the NAFTA trade agreement on tariff-free trade across North-America, and he caused even more autarky for the United States as countries such as Canada, Mexico, China, and the whole EU decided that they would show retaliation to the U.S.’s poor policies. With advice and consent from the WTO, the group of countries put tariffs on many U.S. goods, which would heavily hurt its export-oriented industries and result in many multi-national corporations, such as Harley Davidson, to build plants in other countries in order to jump over future trade-barriers that would hurt its business.
As of two days ago at 12:01 am, the Economist deemed this to be the greatest trade war in economic history as a result of Trump and China upping the ante on the billions of dollars’ worth of tariffs on each other’s goods.
Overall, this current administration does not have a strong hold on beneficial trade policy to all participants. Trump treats trade policy as he did nuclear disarmament, as a game. He loves to push his adversary to its limit until the other swerves. However, this might not be a smart maneuver from Trump because it could lead the U.S. to mar essential trade relationships with other allies that help with globalized growth within the United States and around the world.