Maine Writer

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Friday, May 17, 2019

Donald Trump test of the day - explain how tariffs really work

Donald Trump hasn’t made a convincing argument about #TRUMP_tariffs.  Echo editorial published in The Baltimore Sun.

Instead, he’s been wholly dishonest with the public. Over and over again, he’s deliberately misrepresented how tariffs work, going so far as to suggest the Chinese government cuts a check to the U.S. Treasury. And when his chief economic adviser goes on TV, as Larry Kudlow, and explains that the latest tariff increase affecting $200 billion in Chinese goods will cause the U.S. economy to suffer in the short term? President Trump will have none of it, tweeting, instead, that U.S. GDP was boosted by “Tariffs from China” and that there is “no reason for the U.S. Consumer to pay the Tariffs.” (MaineWriter: OMG.....and we will build a wall and Mexico will pay for it....!)

There can be a case made for imposing tariffs. Those taxes paid on imports raise prices, making those goods less attractive to consumers and, theoretically, giving an advantage to domestic producers. Just as importantly, they give a country leverage on its trading partner. Raise barriers to our exports? We’ll do the same to your imports. With China, there’s an argument to be made that curbing that nation’s worst trade policies (its failure to enforce intellectual property rights and its unwillingness to fully embrace a free market economy among them) requires this level of sacrifice from the American public or the biggest U.S. trade partner won’t change its ways.

Even if Chinese companies partially lower their prices to offset tariffs, consumers are bound to feel the pinch. And as for writing a check to the U.S. Treasury for tariffs? That doesn’t happen. Ever.

American companies buying the goods are the people writing the checks. And they pass along the cost in the former of higher prices to consumers, who ultimately bear the brunt. That’s how it works. That’s how it’s supposed to work. It’s this added cost — this disincentive to buy imported goods — that’s supposed to drive policy change. Meanwhile, China announced Monday that it will impose higher tariffs on $60 billion of U.S. goods. That’s what Trump trade policy has actually wrought so far.

And while there’s an argument that “both sides pay” in a tariff war — another point made by Trump’s director of the National Economic Council, — but Donald Trump won’t even go that far. His position on tariffs has been consistent — consistently misleading. Now, perhaps this can be ascribed to the usual Trump salesmanship that overstates arguments much in the manner of a high-pressure real estate salesman whose idea of a “fixer upper” is a candidate for condemnation to the rest of us. But what’s especially noteworthy here is that Americans might actually rally around a straight talk description of what’s going on. 

In fact, even those American soybean farmers who have been hit so hard by Chinese retaliatory tariffs might support the White House’s position on China trade out of sheer patriotism, if Trump administration claims bore some resemblance to reality. 

Instead, farmers are getting angry — and increasingly desperate.

It’s one thing to sacrifice for a country that claims to need your sacrifice, it’s quite another to sacrifice to a White House that claims everything is going swell. Add the financial losses of exporters like those farmers with the high cost to consumers (the last round of tariffs having cost $1.4 billion a month, the new round probably much more, according to experts) and you aren’t talking about chump change. Does Mr. Trump think the country won’t notice or that they’ll just take his word for it? What happens when Walmart shoppers notice that prices are much higher? Is he counting on them not putting two and two together?
Make no mistake, we weren’t impressed with this tariff strategy from the beginning. While there is an intellectually honest argument for tariffs, we believe the counter-argument generally holds more weight in an increasingly interconnected global economy. And this White House appears to be especially ill-equipped for a complex and protracted trade war that requires study, patience and a clear strategy, which is hardly the modus operandi of a (failed) leader...Trumpzi.... who makes stuff up as he goes along. Trump is certainly capable of hurting China, but to what end? What would victory even look like? Certainly, a better fair trade enforcement mechanism than China has offered in the past would be great, but what else? We don’t know, but whatever the outcome, this latest escalation is unlikely to bring a swift end to a trade war between two economic powers, neither of which can boast a head of state known for his honesty or willingness to be scrutinized.

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