Economic Warfare: Trump Vs China

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Economic Warfare: Trump Vs China

Written by Oscar Scholin, Journalist

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Former Senator John C Calhoun, author of “The South Carolina Exposition.”

In twenty-first century America, tariffs are somewhat of a rarity. (For reference, tariffs are taxes on imports or exports of other nations.) However, throughout American history, tariffs have inspired vehement debates; for example, the nineteenth century saw some of the most fervent debates over tariffs, with the Nullification Crisis of 1828 responding to the “Tariff of Abominations,” which raised tariffs to their highest level in US history, around 60%. The McKinley Tariff of President Harrison’s administration was the second highest tariff in US history, only to be surpassed by the tariff of of 1830 (established under the Tariff Act of 1828), which further exacerbated the developing economic crash that would become the infamous Great Depression. Since 1934 and the election of Franklin Delano Roosevelt, tariffs in America greatly diminished in importance as America moved away from economic isolation and towards a world economy dominated by free trade. FDR most famously began this transition with his Reciprocal Trade Agreements in 1934, in which the United States agreed to lower its tariff levels against other countries also prepared to lower their tariffs against the US. In 1994, President Clinton approved NAFTA, or North American Free Trade Agreement, which promoted the tariff free flow of goods across the North American Continent.

 

 

Today, Trump’s protective tariffs seem to herald a reversal in the broad trend established above. In total, Trump’s tariffs cover about 4.1% of all US imports, which is massively shy of the Tariff of Abominations in terms of overall coverage. However, the level of US imports has drastically increased since 1828, which means that even Trump’s small changes can greatly impact the economy. Trump has brought the question of the tariff back to mainstream politics because he believes in “Making America Great Again” (emphasis added) — he believes in protecting American business interests over those of the consumers. When Trump increases trade restrictions on other countries, those countries in turn raise their own rates to protect their own economy. The cumulative effect of raising tariffs is a negative feedback loop in which countries’ economies become more isolated.

 

Now we can more carefully examine the current “Trade War” that Trump has initiated with China. Trump claims that his new tariffs will “make our country richer than ever” by spurring the growth of domestic business and by encouraging companies to “build in the USA.” But let’s examine the facts: tariffs act like an economic wall. By increasing tariffs, Trump discourages trade which hurts overall economic growth. Also, higher tariffs translate into higher prices for consumers: many companies will pass on the increase in tariffs to their consumers in order to minimize their own decrease in profit-margin. On May 10, Trump increased tariffs on Chinese exports valued at $200 billion from 10 to 15% and has threatened an additional $325 billion of Chinese products.

 

Trump’s current global tariffs cover mainly steel and aluminium, but Trump will likely impose taxes on increasing numbers of Chinese exports, which will only hurt more Americans as time progresses.

 

Thus, Americans will have to choose between patriotism and overall economic benefit — between a more globally or a more domestically centered economy, between pride or individual benefit. While a majority of Americans are in favor of trade, a majority also see trade with China as unfair or incorrect. Most Americans perceive of China as undemocratic and as an exploiter of trade and of its people. Even farmers — those who are most impacted by Trump’s trade restrictions — remain loyal to Trump in large numbers. But one thing remains certain: in an era of globalization, trade is integral to the global economy. No matter how hard he tries, Trump cannot dismantle a century of economic progress. The question is who will break first: Trump, or the American people.

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