Trump’s Tariff Policy is Costing the US Bigly

Donald Trump lives in a world of make believe. In Donald Trump land global warming isn’t happening, tens of millions of dead people get Social Security checks, and he won the 2020 election. Believing, or at least saying, this nonsense might make Trump happy, but the rest of us have to live in the real world, where global warming is very real, Social Security is incredible efficient and largely fraud free, and Trump lost the 2020 election by a wide margin.

In Trump’s make-believe world countries are ripping us off by selling more to us than they are buying from us. As has been endlessly pointed out, this is like saying a store rips us off because they sell us things without buying anything from us. Trump’s complaint literally makes no sense.

There are issues in trade, some countries still have substantial non-tariff barriers, as do we. Some countries subsidize their exports, as is the case with our agricultural exports. And demanding countries pay for our intellectual products (government-granted patent and copyright monopolies) is a massive transfer from other countries to us for literally nothing. But these are the sort of things that you deal with piecemeal, you don’t declare a trade war with the entire world as Donald Trump has done.

At this point I would like to throw out a number as to how much Trump’s trade war will cost us, but it’s not even possible to give a crude estimate at this point because the battle lines keep shifting. On “Liberation Day” Trump was putting large tariffs on the goods we get from all our major trading partners. A week later, he reconsidered and lowered his tariffs to 10 percent for most countries (still a high tariff these days) with the exception of China, which gets a 154 percent tariff.

Trump’s tariff on China would cost us close to $700 billion a year ($5,000 per household) before adjusting for changes in demand. We could use this number as a starting point, except that two days later Trump decided to exempt imports of smartphones, computers, and a number of other big items from his new taxes. Before anyone tries to estimate the cost of Trump’s tariffs with the adjustment for the big items now not subject to the tariff, they should note that it now looks like Trump will be suspending his tariff on imported autos.

The reality TV show approach to economic policy makes analysis difficult for economists and others trying to assess the impact of Trump’s tariffs, but it makes life even more difficult for those running businesses. If there was any logic at all to Trump’s claim on “Liberation Day,” that companies would start producing more goods in the United States, then it was important that the tariffs be clearly laid out. If not set completely in stone, Trump needs to create an expectation that they would be in place for a substantial period of time.

No one in their right mind would spend billions of dollars building an auto factory or semiconductor facility based on a tariff that could be cut in half, or even eliminated altogether, next week. Yet, we have seen Trump repeatedly shift course and announce that more changes are likely in the near future, depending in large part on who kisses his ass, to use Trump’s terminology.

This approach to running the economy will not just mean higher costs due to the taxes Trump is imposing, as well as the retaliation by our trading partners, it will also lead to substantial costs in the form of delayed investment. We will see companies sitting back and waiting to see how things pan out before committing themselves to costly investments. In the short-run, this will weaken the economy and possibly lead to a recession, adding to the effect of layoffs of government employees and cutting back federal funding in many areas, as well as the collapse of international tourism.

We will also see long-term costs. Investment is the key factor boosting productivity and ultimately living standards. Weaker investment, along with the loss of scientific progress from trashing the university system, will mean less progress in raising living standards in the United States.

We could do much better if we had a serious approach to trade. Instead of treating China as an enemy, we can treat it as a trading partner from whom we have much to gain.

For example, we could get high quality electric cars for $16,000, one-third the priceof an average new vehicle in the United States. These cars can be charged for half the cost of a tank of gas and done in roughly the same amount of time. And these cars are improving rapidly, which does not seem to be the case for our gas-powered vehicles.

There is a similar story for solar panels, wind turbines, batteries and other areas related to a green transition. Donald Trump may view it as a good thing that we are trashing the planet for our children and grandchildren, but most people in the country don’t see it that way. If we can both save money and reduce greenhouse gas emissions, as technology now allows, that looks like a winning policy.

As a way to protect employment in these sectors we can negotiate voluntary export restraints, like Reagan did with Japanese autos in the 1980s. We can restrict the Chinese to 10 to 20 percent of our market and make transferring the technology to U.S. producers a condition of access.

We can also look to cooperate in other areas, most importantly healthcare. China has made rapid progress here also, and in some areas may even be ahead of the United States. And its success in developing cutting edge AI has been widely publicized.

There is considerable truth to the argument that we can gain a great deal from trade. We had a policy of selective protectionism in past decades that totally screwed millions of workers without a college degree. But we won’t correct these wrongs with a regime of ill-considered tariffs. The tariff games may make Donald Trump rich from bribes, but it will make the rest of us poorer.

This first appeared on Dan Baker’s Beat the Press blog.

The post Trump’s Tariff Policy is Costing the US Bigly appeared first on CounterPunch.org.