Trump's Terrible Tariffs

Trump's Terrible Tariffs
The View from the Middle

Before we even begin to discuss the potential impact of Trump's proposed tariffs on steel and aluminum, we need to understand the backdrop in front of which they must be judged. First, the media and opponents of Trump are going to be hyperbolic and reactionary. Remember Paul Krugman, the NY Times Nobel Prize winning economist? He predicted that the world would go into a global recession "with no end in sight" if Donald Trump became President. Not only was that forecast wildly extreme, it was dead wrong. Sweden may be calling to get his Nobel Prize back.
Nancy Pelosi said that the Trump tax cuts would be "Armageddon" for our economy and the US markets. Of course, just the opposite has happened. And we have all witnessed politicians in Washington predict that the "sky would fall" if our incredibly inefficient and corrupt government ever shut down. The Obama administration even tried to make the 2013 shutdown as painful as possible and we all know what happened. Nothing! The sky remained over our heads and the country's economy continued to plug along at its then mediocre at best pace. The point is, people will try to tell you that the world will end from a spiraling trade war that will ultimately drive us to a nuclear holocaust if we establish these new tariffs. Don't take the bait. The media and politicians have been wrong before, even when they predict cataclysmic results The only shocking thing is that no one holds them accountable for their "crazy as bat guano" prophesies.
The other thing to keep in mind is that Donald Trump is constantly negotiating. Remember the original corporate tax rate he suggested for his tax bill - 15%. Where did it end up? 21%. Look what he has offered in his immigration bill - a path to citizenship for 1.8 million dreamers. That is three times the relief that Obama offered with his DACA executive order. That's to get the other provisions he wants, like the wall. Unless you understand this about Trump you will constantly be missing the opportunity to negotiate back and get things done.
So, with this backdrop, let's do a realistic and sane analysis of what the Trump administration is proposing. Is he recommending the 25% tariff on steel and 10% tariff on aluminum for the jobs they will create? Not really. There are only 83,000 steel jobs in the US today, so even if we quadrupled that business, it would only deliver about 250,000 jobs. Now, those jobs would be good paying manufacturing jobs, but that is not a lot of jobs especially when it would take years to deliver them. I believe this is a national security concern for the administration.
In 1948 the US controlled 40% of the world wide steel production. Today, that share is down to just 5%. In 1972 we produce 32% of the global aluminum volume. Today, that number is down to just 4%. Is this an industry where we want to depend on countries like China, who currently controls about 50% of the world's steel, if something like war puts us in a desperate situation? I say no.
But we must consider the reaction of other countries to these tariff increases as we prepare to invoke them. Will this cause other countries to retaliate with import tax hikes of their own? I think that is unlikely. Currently, we not only have the world's largest economy, but we also have the largest trade deficit of any country at 800 billion dollars. Our exports to China represent about one half of one percent of our economy, while their exports to us represent over four percent of theirs. Virtually every developed country has much more to lose through retaliation than they have to gain.
Plus, our average tariff on goods imported into the US is about half the global average, which says we have plenty of room for increases to even catch up to the rest of the world's average. If we actually applied the concept of reciprocity to the taxation of US imports, we could double our taxes before we even rise to level of average! The likelihood of retaliation is small.
Finally, I believe the Trump is using this increase in tariffs as a negotiation tool, especially with Canada and Mexico. He has already suggested that we will exempt both of these friendly countries from these tariffs if they "treat us fairly" in the new NAFTA agreement, which they are currently in the final stages of developing.
Now, will the cost of goods go up as a result of these tariffs? Of course! Any tax will cause the American shopper to pay more for what they buy. But somehow we don't seem to care, or at least notice, when our federal government is the culprit like when we tax gasoline, cigarettes or large cokes. Even an increase in our federal income taxes will raise the cost of everything we buy (in effect) because it allows us to keep less of what we make. Even if prices don't change, everything is relatively more expensive because we have fewer dollars available to purchase things. We all need to be skeptical when our government taxes us as well as when it chooses to tax foreign governments.
The good news is that these new tariffs might raise the cost of a can of beer by about a penny and the cost of a car by only about $175. Is that too much to pay to insure a safer United States of America?