TRADE WARS ARE NOT GOOD, & WE HAVE THE PROOF

… A US container ship heading for Shanghai, China

Most countries have chosen tariff retaliation over capitulation to Trump’s tariffs

OK. Let’s get something straight.  Trump tweeted that: “Trade wars are good, and easy to win.”  This is patently false.

First, foreign countries don’t pay a dime of Trump’s tariffs. Tariffs are basically taxes on imports, and they are paid for by the importers, not by the exporters like China, Mexico, etc.. The president’s advisers know this, and therefore they try to explain away his “China pays the tariffs” claim the way he explains away his “Mexico pays for the wall” claim.  Mexico does not “write a check” for the wall, Trump has admitted this, but he says they will, “somehow pay through changes in trade flows that will emerge from his NAFTA revisions”.  This is also patently false.  

Likewise, China does not actually pay the president’s tariffs.  The US trade adviser, Peter Navarro has tried to explain that the exporter usually, “bears most of the burden of the tariffs.”  They do this by lowering the export prices to offset the tariffs.  However, if this is not done by the exporter, the consumer will pay the higher price that covers the tariff cost.  (And that is what usually occurs.)

The reality of Trumps tariffs are proving to be difficult and costly.  China, India, Canada, Mexico, Turkey and even the European Union (EU) have all chosen their own tariff retaliation, over capitulation.

So, whereas the president has agreed to restart trade talks with Beijing, he is no longer pledging easy victories.  Instead, he is doubling down on the idea that trade wars are good in and of themselves.

According to Trump, “Tariffs will bring in far more wealth to our Country than even a phenomenal deal of the traditional kind.”  He tweeted this in May.  China, he falsely said, was paying “hundreds of billions of dollars in tariffs.” He even claimed that tariffs somehow boosted the first-quarter US output growth.  All false.  As expected, Trump also did not show any proof of these false statements.  And the reason they are false is because of the explanation I gave you for why foreign countries don’t pay a dime for US tariffs.

Fortunately, you can actually test this latest Trump claim.

Each month, the Bureau of Labor Statistics (BLS) publishes an index of the pre-tariff prices of imported Chinese goods.  Any Chinese price cuts, as stated by adviser Navarro, would obviously cause this index to fall.

Given that Trump’s tariffs last year raised the import costs of Chinese goods roughly 6% on average, if Chinese firms had cut prices to offset Trump’s tariffs, the index would have fallen ~6% since last June when the trade war started.  Yet the index fell by barely 1%, and that tiny decline can be explained by Chinese currency depreciation.  BTW: That depreciation would make Chinese goods cheaper for US importers.  There is, therefore, no evidence supporting Navarro’s claim that the exporter lowered the cost to off-set the tariffs. 

So, instead of ”millions of dollars coming into in due to tariffs”, the American consumers were in fact, bearing the burden of Trump’s China tariffs.

Trump’s additional claim is that tariffs are “filling US coffers.” Is also a bunch of B.S..

China tariffs, as you recall, were according to Trump: “Bringing in “hundreds of billions of dollars.” This is false.  US Government data show that they netted just over $8 billion in 2018.  Extrapolating forward through the end of May, the total revenue from Trump’s China tariffs was therefore been about $20 billion.  That’s a small fraction of what the president asserts.

More important, as of last May, Trump authorized nearly $26 billion in compensation to US farmers for their losses suffered to date from the Chinese retaliatory actions. This compensation is $6 billion more than the total estimated China tariff revenue.  So, far from “filling US coffers,” then, Trump’s tariffs have been “draining them at an accelerating pace”.

I must add that the head of the Soy Bean Farmer’s Association has stated that the hit against the US soy bean farmers, which was that their exports dropped 97% when Trump announced the tariffs on Us agriculture products.  (The soy beans have been rotting in warehouses.)  The association’s spokesperson said the bankruptcies and the suicide, or attempted suicide rate, for soybean farmers has ”gone crazy” since the tariff was applied.

Nothing in the independent analysis has even touched on the harm to US businesses and consumers from the higher prices that the president has imposed on intermediate and final goods.  And this does not include the American, non-farm sectors that have been slammed by foreign retaliatory tariffs. 

It is noteworthy that the industries Trump promised to revive are now reeling.  Since the announcement of steel tariffs in March 2018, for example, US Steel has lost 70% of its own market value.

In short, Trump’s trade wars have thus far been an unmitigated economic and diplomatic disaster for the United States.

It is time for Congress, not merely to challenge the president’s ridiculous false narrative, but to end the executive branch’s abuse of its tariff authority under Trump’s outlandish guise of, “national security.”

It’s hard to believe, but the threat of the veto-proof Senate opposition has actually helped force Trump to back down from his recent threat to impose escalating tariffs on Mexico as leverage in his immigration negotiations.

Unfortunately, we must depend on such opposition to be widened before this tariff damage becomes permanent.

Copyright G. Ater 2019