Why Should We Care About: The prospect of the trade war and American protectionism



Chinese export capacity has been unrelentingly lambasted by President Donald Trump for “unfair” trade practices.

Adam Jackman, Staff Writer

The criticisms of this economic platform have not been without warrant though, with taxes hiking the federal deficit (as expected) and the bottom bracket of income earners not receiving equal tax deductions.  However, viewing this objectively, it’s clear that Republicans in Congress have backed Trump consistently in his legislation and that some short term gains are being achieved, such as the increases in the Dow Jones Industrial Average and in consumer confidence.  However, Republicans expected internal conflict over tariffs and trade with Trump and now they are in the thick of it.  With Trump responding to increased tariffs on American goods by China, he has split with his party, which could mean a slippery slope for the United States’ foreign relations for the rest of the Trump presidency.

Since the campaign trail Trump has been advocating for “fair trade.”  In the Republican primaries and more importantly in the three presidential debates with Hillary Clinton, Trump bashed such agreements such as the TPP (Trans-Pacific Partnership) and NAFTA (North American Free Trade Agreement).

“[NAFTA] was one of the worst things that ever happened in manufacturing history,” said Trump during the first presidential debate.

This rhetoric has not been out of line with much of the core of the Republican party, but Trump’s policy to combat these failed trade agreements have outraged a large amount of Republicans in the core of the Trump base.  Republicans have been on a united front in order to reduce the mounting trade deficits the United States has run into, especially with China.  Trump has opted to respond to the imbalance with China with increased tariffs on certain exports such as aluminum, steel, and electronics to the United States from all nations. Trump has declared 25% tariffs on steel and 10% tariffs on aluminum that have angered China and many other nations.  This measure seemed acutely aimed at China, because they are the largest steel producer in the world and in the past they have hiked certain tariffs on the United States’ electronics.  The tariff option seems the most logical to restore the balance: by putting higher taxes on those consumers of Chinese goods in the United States they will lean toward buying from non-taxed American manufacturers.  In turn this will boost production and revive some dying industries.  Since 2000, US employment in steel and aluminum has dropped 38 percent, while those industries in China have grown in output by 560 percent over the past year.

The principle behind China’s rising steel production and the reason that tariffs cannot combat it, is due to the steel intensity curve. This curve is used to model growing economies in their relationship to steel production. This curve, based of data from numerous countries, shows that as a country industrializes initially from an agrarian society, the consumption of steel tends to increase rapidly to meet manufacturing demands and then plateau and subsequently decrease as the economy shifts over to goods in electronics and entertainment. This is where the tariff proposal now starts to become illogical. Since China’s steel industry is utilized mostly to build up its ever urbanizing nation, a tariff on its steel imported into the United States would not have a desired effect. Adding on to the inefficiencies of the tariff, the amount of Chinese steel that makes its way into American ports is miniscule compared to the rest of the world. This means that the tariffs, again, would only be hurting the Chinese economy marginally. Tariffs do not make sense if they do not hurt the intended target and put pressure on their economy, but these tariffs hurt the United States domestically as well.

While the steel producing industry in the United States may be on the decline, the steel importing industry is on the rise. The United States employs just 385,000 people for primary manufacturing, while it employs 4.1 million people to transform that metal into supplies. With tariffs in place against incoming steel, it could end up hurting those businesses which rely on Chinese steel to function. More consequences of the tariffs could hurt the United States by having other countries impose more tariffs in retaliation to the United States’ tariffs against their goods. With the United States already out of the TPP agreement and out of NAFTA as well, other nations that could be trading with the United States are turning to other nations as well. This past week, Mexico made a deal with the European Union to have all goods between the two partners transfer without tariffs: benefiting both parties. The European Union has also threatened to institute tariffs against goods from the United States if the tariffs continue. At the end of TPP negotiations, during the final months of the Obama Administration, it was Republicans who wanted to get the agreement passed with more free trade clauses, benefiting trade between United States and pacific nations. However, Donald Trump is causing faction in the Republican party, and starting a heated debate and maybe even trade war with China that the polarizing political landscape of the United States does not need right now. Trump needs to get back in line with the core of the Republican party or it could end up derailing the pride of his administration: the economy.

While Trump prides himself on “America First” policy and helping out American businesses, his tariff measure does exactly the opposite. While it may look pro-America on the surface by incentivizing American steel manufacturers over their Chinese counterparts, it actually ends up hurting more American businesses. Businesses that import steel are vital to the United States economy and are hurt by tariffs on the steel that they import.

What Donald Trump fails to understand is that by building up other nations’ economies with trade, it is not hurting the United States. In fact, foreign markets, for many American companies, have great value to their business and therefore the American economy.  The benefit to trade between China and the United States is astounding according to Max Baucus, former United States ambassador to China.  However, if tariffs are not the answer, there seems to be no solution. The trade deficit to China is still astounding and ever increasing. But there is a solution staring the United States straight in the face: free trade. It has been the message of the Trump train for years now and his tariffs suddenly brought it to a screeching halt. Trump, however, can resume his free trade policies easily by uniting with his Republican allies in Congress that have largely supported him throughout.

The United States has a large federal deficit and certainly a large trade deficit with China, but that does not mean that deficit can be eliminated by alienation of Chinese goods or goods from other manufacturing nations. President Trump needs to abandon his tariff policy and unite with Congressional Republicans to structure trade deals that are beneficial to both partners involved. Trump may be right that the United States is, “getting ripped off in trade,” but the solution is not to rip other countries off. Helping out developing economies by doing business with them, in a reciprocal manner, is the smart choice that Americans need in a uncertain time. America needs to balance the deficit and smart trade, not tariffs, is the way to go.