Let’s have a trade war

On Friday, our President Donald Trump said that he is unafraid of a trade war. What the heck is a trade war? It is when two or more countries place extra taxes on imported goods from their adversary. Why would a country do that some might ask?

Here in America we have been mostly a free trader in our recent history and try to have our trading partners do the same for our goods. That sounds fair but unfortunately many countries do not play fair. Many countries that we trade with have treaties with us that say what can and cannot be taxed when they reach a country, but some apply a hidden tax or two.

There are a few countries that want to protect a strategic industry or a small growing part of their economy. For a good example take steel, one of the building blocks of industrial and military strength. If you cannot have your own steel plants you have to buy it from someone else and they could cut you off. People might say “but our friends would not cut us off.” Really, today’s friends could change sides with a change of government. Because of that it seems smart to maintain some protection for strategic industries.

Steel is one of the strategic materials; consequently most countries want to build a steel industry for themselves.  Yet because the steel business is very competitive and the use within some countries can be highly variable most steel companies want to sell to other countries to balance their output. In order to sell some extra production they lower the price, sometimes (many times) below the cost of production.

Since the United States is a heavy user of steel, many want to sell here and to undercut our own steel producers so they sell below cost. The result is our companies sometimes have no sales and go out of business leaving us without a strategic resource.

In many cases trade taxes result in the customers within the home country paying more for goods that have been taxed. However, the downside is that if you have a large trade deficit, your country’s wealth is being transferred to the other country. The example is China where in 2017, the US exported $130.4 billion worth of goods to China, the world’s second biggest economy. We imported $505.6 billion worth of Chinese goods, according to Commerce Department statistics. Consequently China got $375 billion of our people’s wealth.

Think about that, we are losing wealth and others are gaining. That is why we have businesses close and jobs go away. Many automobile building jobs go to other countries where wages are very low and so our people are out of work. To finance this loss we just print more money without any backing. That is why we are $20 trillion in debit and going downhill fast.

Over the years, our trade policy was to let cheap goods in and selling our things to those we buy from to balance the books, but that is no longer working. Over time these deficits drain our wealth and then we’re broke, just look at household finance if you spend more than you make you are transferring wealth to someone else and if you transfer more than you have borrow and borrow until you eventually go broke.

The President has said we are already losing the trade wars when our country posts a massive trade deficit. We need to stop this transferring of wealth to others and keep it at home. That is the basis of the slogan “make America great again.”

Some do not want that because they have so much money they don’t care and want to make more overseas profits. When our workers get more money, it’s “Just Crumbs.” If we do not do some readjustment in trade balance there may not even be any crumbs.

 

 

Comments

  1. David Petrillo says:

    Mike, you are again ignoring the forest for the trees. You mention that we import $506 billion in goods from China. Why do we import these goods? Who imports these goods? Let’s review some recent history. In the 1950’s most of our manufacturing jobs were in the Northeast and Midwest. Corporations decided that they could move those jobs to the South where the labor was less expensive and were usually union free. That worked for a few decades but gradually the standard of living increased in the South and the labor became more expensive. These same Corporations decided that it would be less expensive having our goods made in countries like China.

    What has happened since we moved the manufacturing to foreign countries? Our economy has exploded, our Corporations are making record profits, and our total wealth in the US has increased to the highest level in history. Yes we import billions of dollars worth of goods from China but most of those goods were designed in the US and most of the goods are resold by Walmart, Home Depot, and other retailers. These retailers employ millions of people. These retailers also sell those goods in other countries.

    This gets me to the global economy. What has happened in those foreign countries like China, India, Vietnam, and other trading partners? Their economies and standard of living also increased. This increase in other countries standard of living is great for us. They supply more buyers for our cell phones, automobiles, and our gaming industry, to name just a few. Where do you think Wynn Resorts and the Venetian get all their profits? The increase in the China middle class has increased their tourism to the US.

    I lived in the Detroit area most of my life. Trump’s tariffs will kill the automotive industry. Auto parts flow both ways across the Detroit river. If you get into a trade war, there are consequences. Auto workers will be laid off, car dealerships will lose money, and our economy will slide into a recession. And that is just one example. What about farmers who grow grain that is exported?

    Mr. Trump, being ignorant of how the world economy works is only looking at the ins and outs and not the underlying benefits to our economy and the economy of our trading partners. Who will buy our products if we become isolated? Do we want to go back to the days that only the US and Europe had good economies? The current system is a win win for all parties

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