A Republican’s View
On March 8, President Donald Trump signed a tariff of 25% on steel and 10% on aluminum, which was enacted 15 days later. This tariff is aimed directly at China and excludes Mexico and Canada, as they are important regional neighbors to the US. The world is on the edge of its seat, waiting for these countries to respond. Are we on the verge of an economic World War III?
In the event of the most extreme outcome that no trade occurs, the US would not see any more lavish Moroccan carpets; no more Canadian maple syrup; no more Colombian coffee; no more French wine; and no more Italian pasta. Without the ability to export their products to foreign countries, these businesses would face economic hardship and, as a result, only the companies that could thrive within their own countries would survive. Furthermore, the US would not be able to export wheat and other commodities, putting millions of Americans out of work.
If this full-on trade war became a reality, this is the miserable world that we would be living in. To be fair, an economic World War III does not seem to be the most likely result, but Trump’s imposition of this tariff still presents a highly complex situation with multiple other possible outcomes.
It should be acknowledged that America is a proud capitalist country, so tariffs, both generally and in regards to this specific one, go against these core beliefs. Eighteenth century economist, Adam Smith believed that competition and self-interest would be the “invisible hand” in what was dubbed laissez-faire economics. These are the principles that America has been built on for much of its existence.
Right before the tariff was enacted, Trump tweeted:
“Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world. We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!”
Treasury Secretary Mnuchin discusses Trump’s plan with dealing with a trade war with China:
I would like to look more specifically at the last clause about “free, fair, and smart trade.” First, trade cannot be “free” if unequal tariffs are pressed on certain countries.
Next, when Trump mentions “fair” trade, he is referencing the fact that this tariff actually attempts to level the playing field with China; China has a 25% tariff on automobiles, while the US’s is only 2.5%. In addition to the tariff on automobiles, China has harshly imposed numerous other tariffs on the US that are unequal in amount to the tariffs that theUS has imposed on China. That being said, Trump is using this tariff as a way of telling China that unfair trade will not be tolerated.
Finally, whether
or not this move by Trump turns out to be “smart” is yet to be determined. If a full-blown trade war erupts, as many economists have predicted, and tariffs become so high that globalization ceases to exist, then this would turn out to be a horrendous course of action. On the contrary, if China were to lower their excessive tariffs, than this course of action would be seen as a powerful and successful move by the US. There really is no way of knowing the final outcome of this tariff, but I believe that China will renegotiate some of their tariffs and give in to the US before they start a trade war.
Trump imposed this tariff for two main reasons: to stimulate the US economy and to make things even with China. Tariffs can almost be viewed as giving someone a head start in a race. Years ago, Chinese tariffs were imposed because the US wanted to help out a struggling Chinese economy. Today, the Chinese economy no longer needs a head start, and Trump is doing what he believes is the best tactic to combat this.
Different presidents would have had different approaches to solving a problem as such. President Obama, for example, would have negotiated by drawing a line in the sand and then stepping back and redrawing it numerous times before reaching an agreement. Trump’s approach is different in that he plans on negotiating after inflicting a forceful blow to China. In that sense, he has grabbed China’s attention and showed them that he is serious about negotiating. Only time will tell if Trump’s bold negotiating tactics will provide positive results, but if Chinese president Xi Jinping’s recent pledge to lower automobile tariffs is any indication of things to come, then it should yield success.
A Democrat’s View
Recently, the Trump administration imposed a series of tariffs on exports from China. Claiming that it is essential to punish China regarding their controversial trade practices, the United States now has a 25% tariff on varying Chinese products. China retaliated with a series of tariffs on U.S. products, costing a staggering $50 billion to the US economy. Not only is this move by Trump economically dangerous, it also compromises his campaign promises.
During his campaign trail, Trump promised rural voters that they would be represented in the White House and have more of a say in affairs in DC. These trade tariffs do the complete opposite, however. Farmers in rural areas are at a disadvantage because rising tariffs lower profits and strain their relationship with customers abroad. In fact, initiating a trade war with China can prove to be lethal, as upcoming elections in farming states can take a massive turn against Republicans.
However, the strain this trade war puts on American farmers does not end here. Beijing has promised to inflict another series of tariffs in retaliation. These tariffs would target even more agricultural commodities, such as soybeans. Not only would this severely hurt farmers in the Midwest and betray his campaign promises, but it is a war that America cannot win.
Trump believes that America’s huge trade deficit with China is enough to win this trade war, but, truthfully, China is still in a stable position, economically and politically. The notion that China has more to lose in this trade war is simply wrong. China’s economic susceptibility is highly exaggerated, while America’s is higher than what most people presume. Last year, U.S. imports from China amounted to approximately $506 billion, which is four times the number of exports from China. The United States sold $38 billion in addition to this, however, which accounts for its largest bilateral surplus.
On top of this, the majority of products that the US exports to China are simply agricultural goods, but 37% of imports from China are mechanical products; American-based corporations heavily rely on these mechanical goods, when it comes to manufacturing their products. In the long run, American manufacturers would be hurt by this tariff more than any industry in China would be.
Straying away from the trade policies of his campaign, in which he promised lower foreign tariffs, Trump has managed to enter the United States into a state of economic warfare that it cannot win. In doing so, American manufacturers and farmers will undergo a severe drought in sales and will have to adapt to the changing economy under the Trump administration. The current administration has strayed away from the free trade policies that this nation was founded under and continues to institute policies that will tarnish the US economy.
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