Weekly Opinion Editorial
TANTRUM OR TREATY?
by Steve
Fair
A tariff is a tax, duty or
fee imposed by a government on imported goods.
Tariffs are used by governments to do two things- generate revenue and
to protect their domestic industries from foreign competition. There are generally two types of
tariffs. Ad valorem tariffs are calculated
as a fixed percentage of the value of the imported good. When the price rises or falls, the tariff
does as well. The second type of tariff
is a fixed or specific tariff. It doesn’t
vary with price. Many tariffs are both
fixed and variable.
Last week, President Trump
announced a 25% tariff on all imported steel and a 10% tariff on imported
aluminum. “Today, I am defending America’s national security by placing tariffs
on foreign imports of steel and aluminum,” the POTUS said. Trump exempted Mexico and Canada from the
tariff and said other countries can apply for exemption. Trump’s action resulted in his chief economic
advisor Gary Cohn’s resignation. Cohn
disagreed with imposing the tariffs because he believes they will result in
higher prices for the American consumer and foreign governments will retaliate with
tariffs on American exports.
Trump’s primary target is
Chinese steel exports. The Chinese
production of steel is more than the U.S., Russia, Japan and Europe
combined. They have flooded the world
market and due to cheap labor, they have a definitive advantage over the rest
of the world. By exempting Canada (the
#1 steel exporter to the U.S.) and Mexico(#4), Trump has tempered the price
increases U.S. manufacturers will incur.
There was no shortage of
Republican elected officials criticizing Trump’s decision. Senate Finance Committee Chairman Orrin Hatch
(R-Utah) said the move was misguided.
Speaker Paul Ryan (R-Wisconsin) said he hopes the tariffs will not
result in ‘unintended consequences.’ Senator Jeff Flake (R-Arizona) said he
would introduce legislation to nullify the tariffs. Senator Mike Lee (R-Utah) introduced a bill
last year that would give Congress oversight on any trade agreement. But it’s not likely Trump will sign a bill
that restricts his authority to impose tariffs and it would be near impossible
for a Republican lead Congress to override the veto.
First, those who think Trump’s
action will create a trade war are clueless.
America has been in a global trade war for the last fifty (50) years and
losing. During the last half century, elected
officials, including a bunch of Republicans, have promoted policies encouraging
free trade, but ignored fair trade. As a
result, manufacturing left America to other countries for cheap labor and those
countries imported those cheap products back to the U.S.
Second, America is the
largest consumer market in the world.
Countries that want to do business in the U.S. will not want to
antagonize the situation, so retaliation is not likely to happen. What is likely to happen is America having more
leverage at the trade table and may result in a more level playing field.
Time will tell if Trump’s
tariffs will result in a tantrum or treaty from America’s trade partners.
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