On Campus

New tariffs cause trouble

Over the past few months, President Trump has aimed to fulfill a major campaign promise by levying tariffs on American trading partners, including the People’s Republic of China (PRC), Canada, Mexico, and the European Union (EU). Starting with a universal tax on aluminum and steel imports, the Trump Administration has since broadened the scope of tariffs to include about $60 billion worth of imports from those four economies. 

Americans’ responses to this policy have been all over the place—Democrats won’t endorse such a Trumpist move (especially one with nationalist undertones), but the policy broadly aligns with their platform, while Republicans would prefer free and open trade but decided long ago not to step out of line behind their amateurish president. The sheer complexity of this issue has led to a disproportionately low level of national discourse when compared to the immense importance of international trade. 

Put simply, tariffs are taxes levied on imported goods. Their purpose is to raise prices of foreign-made goods in order to incentivize citizens to buy domestic products. The president’s first set of tariffs, for example, charged 20 percent of the value of washing machines and solar cells when they were imported into the U.S.—a move that was not exclusive to China but clearly targeted Chinese industry (Samsung and LG manufacture many parts of their washing machines in China, while Whirlpool, an American corporation, had successfully petitioned the government for “import relief” in the form of taxes on its competitors).

Ideally, the price increase on foreign machines, an attempt by foreign manufacturers to counteract profits lost to the tariff, would encourage consumers to buy more Whirlpools than Samsungs. But while an individual tariff may benefit a particular national industry, it also raises prices for consumers. This point is a rare consensus among economists and something that’s easy for the public to see: January’s washing machine tariffs were followed by a 16.4 percent increase in retail prices.

One of the goals of the World Trade Organization (WTO), the global governing body on trade, is to encourage corporations and developed countries to help economic growth in developing countries. Therefore, the WTO allows more punitive tariffs to be levied by developing countries to protect their fragile industries while inciting large corporations to invest in their economies. 

China, a formerly developing country that has now reached developed status, still holds the title of a developing country under WTO policy, allowing it to reap the rewards of unimpeded global trade. The president himself, somewhere amidst all the rest of his nonsense, tweeted, “China, which is a great economic power, is considered a Developing Nation within the World Trade Organization. They therefore get tremendous perks and advantages, especially over the U.S. Does anybody think this is fair.” 

In addition to taking advantage of the WTO, China exploits the U.S. on trade in several other ways. The PRC’s theft of American intellectual property has been a popular excuse for Trump’s economic nationalism (think about all those basketball jerseys we see kids at BB&N wear when spring comes around—it’s hard to come up with $100+ for an authentic one when you can just get a Chinese knockoff off eBay for $30), but environmental standards and labor protections (not exactly the bread and butter of Trumpism) are at least as important.

The U.S. government regulates how much carbon American factories can emit, how many hours workers can clock in for, and how workplace injuries are dealt with because the human benefits are essential despite the economic cost. However, the PRC’s priorities are different, leading to the rise of cheap, inhumane (albeit efficient) sweatshops across China. It’s impossible for American factories to compete fairly with Chinese ones when they waste so much of their potential profits on the margins. Clearly, these regulations are necessary—that’s why Trump’s tariffs, or other measures, should be aimed at forcing China, and other developed countries in the WTO, to adopt the same standards.

This is incredibly complex. If Trump were carefully pushing the exact buttons, working with the WTO and international community to coerce the Chinese government to make political concessions, I would argue that tariffs could be extremely helpful to Americans, the Chinese people, the environment, and the entire world. However, a more honest examination shows that Trump is probably motivated by politics and the isolationist xenophobia that drives him and his supporters. The only trade deal he agreed to (on May 22), he backed away from the next day, just to bring even more harmful tariffs against China. International trade is immensely complex and relies heavily on political statesmanship, a concept that the president has yet to grasp. He’ll need to recognize that but it isn’t a character trait, either if he’s going to make any headway on international trade.

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