America has been losing the global trade war!

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.