A research by Massachusetts Institute of Technology economists, Harvard University economists, the University of Zurich economists and the World Bank economists concluded that Trump‘s tariffs during his previous term did not increase or decrease US employment.
The US imposed 25 per cent tariffs on Canada and Mexico on Tuesday, as well as a further 10 per cent tariff on China.
Beijing was hit with an initial 10 per cent tariff last month, while Canada and Mexico were able to negotiate successfully for a one-month reprieve.
But if economics is to triumph, the Trump administration will be forced to turn back at least some of those tariffs. Question of time. Here’s why:
The American economy’s structural problems
The US economy is trade-dependent, and that is part of its structural design during the post World War-II period. It is due to the fact that the American economy uses more goods than what it domestically produces. Consequently, its imports are nearly always greater than its exports, leading to a trade deficit wherein it imports more than it exports.
Why is that?
When a nation imports more goods than it produces domestically when it is at full employment, it must find the extra goods from other nations through imports. And that is causing a large trade deficit – the difference between what it purchases from other nations and what it sells to them.
This trade deficit is a point of contention for Trump, which he’s used as the trigger for the imposition of tariffs on countries around the world. But what this simplistic assumption glosses over is the fact that till the time America consumes more than it produces, it will have a deficit with a lot of countries. This is also caused by the fact that the cost of labor in America is high, and therefore it does not deserve economic sense for American workers to be making this at an efficient rate in the country, such as clothes or consumer items.
So, other countries that have relative efficiencies in these sectors, primarily due to labour or raw material advantages, are more effective at producing these goods and shipping them to the US.
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why India can’t rely on the Trump White House The changing labor productivity problem, and a re-alignment of comparative advantage towards developing countries account for the decline in US manufacturing jobs, and tariffs won’t solve that basic problem. In addition, the use of the US dollar as an international reserve currency yet another persistent post-war phenomenon has actually allowed America to fund domestic consumption of foreign goods. The US, in that regard, has a comparative advantage that none have.
And other nations would also be perfectly within their rights in considering this currency advantage possessed by the US as one discriminatory trend, just as Trump looks at the trade deficit as a discrimination “endured” by the US. Also, Trump’s pretext fentanyl imports is also dubious, particularly with regard to Canada, since America’s northern neighbour is responsible for less than 2 per cent of all fentanyl imports into the US.
Primarily personal, not a lot of economic sense here
For a man who is usually flighty with his opinions, tariffs are one area where Trump’s been unusually consistent. In 1987, many years before he ever expressed any interest in seeking political office, Trump placed a full-page advertisement in the newspapers threatening that Japan was “taking advantage” of America, as it referred to the astronomical trade deficit between them.
As with most things Trump, this was really a matter of personal taste, which in all likelihood resulted from the real estate developer’s having lost out on a bid for a grand piano in New York to a representative of a Japanese trading company just a few days before running these ads. His tariff views have survived all these years, though there is not much economic sense in a nation like America imposing such big tariffs.
Trump has repeatedly asserted that tariffs are financed by other countries. This hardsell, has appealed within his base, but is outrightly false. It is actually US importers American firms or agents of overseas firms in the US who pay tariffs when the goods arrive and who remit the funds to the American Treasury. These firms then typically transfer the increased cost to customers in the form of elevated retail prices.
That is part of the reason tariffs went out of style as international trade expanded after World War II and economists argue that consumers ultimately pay the price for the tariffs. Sure, tariffs can affect other countries by making their products more expensive and difficult to sell internationally, but there is collateral damage for both sides.
For example, Canada and Mexico have threatened retaliatory tariffs on American imports. That would concern Washington, as Canada is its largest individual market, larger than the European Union, the UK and China combined.
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