Trump's Tariffs - Terrible or Terrific?

Trump’s Tariffs – Terrible or Terrific?
The View from the Middle

As my readers will already know, I am always skeptical of our government’s implementation of taxes. I think that our government is the worst manager of our funds and I would gladly reduce the size of the leviathan that we call the federal government in order to allow our citizens to keep more of what they earn. And tariffs are taxes, are they not?

Yes! And, in fact, tariffs are taxes with a double negative impact on the world’s citizens. First, a tariff punishes the workers of the exporting country by unjustifiably raising the costs of their goods to the importing country thus making it less competitive. Second, tariffs raise the cost of those goods for the consumers of the importing country. In other words, even when we slap a tariff on an import, our government gets the revenue but our citizens pay the tariff in higher prices. So, the Trump tariffs must be terrible, right?

Not so fast. If the goal of our increase in tariffs on China, the EU, Japan, Mexico and Canada is to reduce if not eliminate tariffs in the future, then they are a good thing. Can you imagine a world without tariffs, without trade barriers or subsidies of any kind? Citizens around the world will benefit from a cheaper cost of goods and the America worker will win big time! The elimination of tariffs allows the American worker to compete on an even playing field with Europe, China and the rest of the world and I have complete confidence in our workers and in our system to win in that environment.

So how did we get to where we are today? After World War II, we (America) went on a campaign to rebuild Europe and Asia. We became the marketplace and Europe and China became the marketers. This was probably appropriate for the world at the time, but times change.

Over the next 60 to 70 years we have allowed the gravy train to continue at the expense of the American people. We kept tariffs down on our imports (their exports) and allowed their tariffs to increase to the point the world’s tariffs are about twice the rate of ours and China’s tariffs are about three times our rate.

In addition to this ridiculous tariff imbalance, we have allowed China to manipulate their currency, which also disadvantages American goods sold in China. If all that was not enough, we have allowed China to create barriers to American investment there. If an American company wishes to open a business in China, for example, they MUST acquire a Chinese partner to do so. Their plan is to have that “partner” steal all of the American company’s intellectual capital and then eventually take over the company completely. We did all this with the hope of getting fair and free access to the 1.4 billion people there. Obviously, that was not THEIR plan.

And, what have the decades of appeasement delivered for America? We currently have a total trade deficit of almost $600 billion and our deficit with China alone is almost $400 billion. Germany, Mexico and Japan have also manipulated their way to $70 billion surpluses for themselves. And Trump’s tariffs is his way of saying that the days of unbalanced tariffs, trade barriers, subsidies and currency manipulation is over. And I think we can all agree that would be a great place to be.

Trump took his battle against tariffs to a new level this last week with his announcement of $12 billion in aid to farmers hit by retaliatory tariffs from other countries, especially China. Personally, I would make clear that we will spend every penny we receive in tariffs, especially new tariffs, to support the very industries they have targeted. This should drive home the senselessness of their desire to maintain their trade advantage and usher in a new era of world-wide Fair Trade!!

The European Union (the second largest market in the world outside of the US) was the first to blink. Yesterday, President Trump and the European Commission President announced a deal for the EU to make commitments to purchase American soybeans and liquified natural gas (two very strategic choices!!) on their way to a world of massive tariff reductions if not total elimination. My guess is that Mexico is next on our path to a world of zero tariffs or at least free and fair trade.

PS – China has a program called “China 2025”. The ultimate goal of this push is to have China replace the US as the economic leader of the world by that date. Imagine a world where the #1 economic power is a brutal, unscrupulous power with little to no concern for the rest of the planet instead of the free market capitalists of America. Let’s say this country also holds trillions of dollars of our debt. They will be savage task masters to our children. We don’t have time to play polite diplomatic games any more. This problem needs to be addressed right now. If you have a better plan than Trump’s tariff plan, let me know. Just saying “pretty please” is not going to cut it.