Now, we recognize that boys who play with matches don’t always get burned—but we all know it’s a really bad idea, so responsible grown-ups invariably discourage the practice. Sometimes boys who play with matches do get badly burned…sometimes they burn the house down.
Can trump’s tariffs backfire? Of course, they can. Are they likely to backfire? Quite possibly not, but, then again, quite possibly, they very well could…big time.
Tariffs are not new to America. Remember, until 1913, we had no income tax, so tariffs were sort of a sneaky device for taxing the people anyway. That’s all a tariff is…a tax on the people of the importing country. Earlier in our history tariffs sometimes represented well over 90% of total federal revenue. The most startling example of the US imposing protectionist tariffs would be the imbecilic Smoot-Hawley Tariff of 1930. Every country responded by imposing retaliatory tariffs. Demand withered across the globe, economies further retracted, and the entire world sank further into a horrendously deep economic decline. Most people who read understand that. Most people who don’t may never understand that.
Now, to be fair and not alarmist, President Trump has a lot of heft on his side of the trade bargaining table, because we buy more from almost every country than those countries buy from us—much more. Thus, he can push his considerable weight around with some degree of immunity. That assumes, of course, that our trading partners don’t mind getting pushed around too much. If they do, some of them may push back, and some of them, such as China, have plenty of muscle with which to push if they choose to fight.
The real shame of the growing tariff war is that it is being fought to deliver a campaign promise. Our growth in manufacturing is booming…more so than at any time in the last thirty years. Ironically, one area where manufacturing growth has been strongest has been in those areas where our international trading partners have invested heavily in the United States. For example, recently released data show that the $51 billion that Japan has invested in building auto plants in the United States during the last three decades has produced 94,000 manufacturing jobs and another 1.6 million indirect jobs at dealerships and other suppliers. Yet here we are, preparing to threaten Japan with tariffs.
Imbalance, when we speak of trade is a bit of a misnomer anyway. America sends a trading partner dollars of a certain value. The trading partner sends America merchandise of equal value. That’s not really much of an imbalance.
What is out of balance is our US manufacturing job growth. But that’s really not a trade issue. That’s a technology issue. Technology is creating a need for many new jobs, but there is a serious imbalance between the high-tech skills needed and the high-tech skills that are available. That’s something that can’t be remedied with tariffs.
We do have serious issues with China, but tariffs are a poor way to deal with those issues. We think the odds are pretty good, however, that China and the US will find common ground, but that is far from certain. China has retaliatory options such as withholding rare earth minerals vital for manufacturing a wide range of high-tech products. Also, we shouldn’t lose sight of the fact that China is our largest foreign creditor, holding more than $1trillion of US debt. Most people avoid unduly irritating their creditors. These are not attractive retaliatory options for China, but no one knows for sure just how far China is willing to get pushed around by a debtor that owes it well over $1trillion.
Trump seems so confident that the tariff matches he’s lighting with China will pay off that he’s now about to light a few big ones with Mexico—and not just over trade, but rather, over immigration. Now, that will represent a new chapter in the use of tariffs and a really bad one. It establishes an awful precedent. With the exception of White House advisor and immigration hardliner Stephen Miller, it seems that every other senior Trump advisor is aghast at Trump’s determination to expand the use of tariffs as a club to get what he wants when he wants it. Even son-in-law and senior advisor Jared Kushner reportedly implored Trump to back off of the tariff threat. He reportedly reminded the President that the new trade deal (to replace NAFTA) that the US has negotiated with Mexico and Canada could be in jeopardy, but apparently, to no avail. Trump seems perfectly willing to imperil the new trade deal with Mexico and Canada. He seems to like the big club that tariffs represent. Wherever we have a dispute with another nation there’s always the threat of imposing tariffs. You can do that, he seems to think, when you buy much more than you sell.
Tariffs as a big stick. Speak loudly and carry a big (tariff) stick. Teddy Roosevelt, who had a healthy respect for the danger tariffs represent, would turn over in his grave. The Trump Administration, it seems, likes tariffs—like some boys like matches.