Dumb and Dumber

10 May 2019

 

Cogito Ergo Non Serviam

Trump Increases Tariffs on Chinese Goods

 

President Donald Trump is probably the last leader of a developed economy who believes in tariffs as a tool of economic policy. The president slapped a 10% tariff on billions of dollars worth of China's goods quite some time ago, and as of midnight, that has risen to 25%. Mr. Trump believes that this will bring China to the negotiating table (where they have been sitting for some time now) and force them to accede to America's demands. All he has done is drive up consumer prices by $1.4 billion per month. The latest move merely puts the world economy at risk.

In his latest tweet on the matter (the man can not think in more than 280 characters at a time), President Trump stated, "Talks with China continue in a very congenial manner - there is absolutely no need to rush - as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S." The only thing that might be true is the congenial nature of the talks. The rest of it is patently untrue. China is not paying a penny to the US Treasury. That is not how tariffs work.

Mr. Trump seems to believe that the boat arrives with Chinese goods, the customs officer holds out his hand, and the Chinese pay him to let their goods into the country. That is utter nonsense. The boat arrives with the cargo already paid for including the tariffs. The money was paid by the importer. The importer will try to claw back the amount paid to the US Treasury by raising prices on the consumer. In other words, a tariff is a tax on consumers.

The US consumer has three options. He or she could pay the extra to buy the Chinese product. Alternatively, said consumer could simply not buy the product. Finally, the American consumer could buy the product from a non-Chinese source, usually at a higher price than the Chinese product would be without the tariff. Mr. Trump believes that taxing Chinese-made TV sets will revive the American TV manufacturing industry. The problem is there isn't one.

Of course, China will retaliate, to the detriment of Chinese consumers. Both nations' average citizens will be worse off. That has implications beyond the Sino-American trading relationship; French Finance Minister Bruno Le Maire was blunt, "There is no greater threat to world growth."

BBC economics correspondent Andrew Walker explained, "Any softening of demand among Chinese and American consumers and businesses is likely to affect their suppliers. To take some possible examples, China is a key market for metals and energy exporters and for suppliers of industrial machinery such as Germany. The US is a key buyer of consumer goods. These two markets won't dry up, but they could be a little weaker as a result of any economic hit from the tariffs."

To take some of the sting out of the tariff's effects, Mr. Trump gave US farmers, hit badly by the collapse of their soybean sales in China because of the tariffs, $12 billion last year. That was not enough to keep them in the black. He is now likely to have to pay them more as well. And that is funded by the US consumer/taxpayer. Worse, the US is probably not going to get its soybean sales in China back. More reliable suppliers like Brazil swooped in and now are making the sales.

There are genuine problems in the US-Chinese trade relationship, not least of which is the theft of American intellectual property over the last few decades by Chinese businessmen and spies. A high-profile trade war featuring tit-for-tat tariffs and trade restrictions isn't going to help. Instead, it will make those who have earned a raise a little less secure in their jobs.

The longer this goes on, the worse for everyone.

© Copyright 2019 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.



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