There’s been a lot of talk in the news lately about a trade war with China, largely because President Trump may have started one.
Like America, China is one of the world’s largest economies. It is a net exporter of goods like clothing and electronics, but it is also a huge exporter of production materials, especially metals. That’s why last month President Trump began calling for steep tariffs on Chinese metals, particularly steel and aluminum. There are a couple of reasons why President Trump wants these tariffs, and a couple of reasons why they might not be a great idea.
The most direct result of the tariffs for the everyday American might be that they make American-produced steel and aluminum cheaper than Chinese steel and aluminum, which may drive American producers to buy these materials domestically. Now, I’m a huge supporter of buying things as locally as they can be purchased, but the fact that Chinese metals are cheaper than American metals necessarily means that driving producers to use American-produced materials will drive up prices. This also might not be a great trade off because the American economy is more reliant on industries that use these resources than it is on industries that produce them.
President Trump’s larger goal is to decrease the trade deficit between America and China. The trade deficit with China, unlike budget deficits, isn’t necessarily a bad thing, especially because America and China have fairly different economies. In addition to being cheaper to buy from China than American producers, steel and aluminum production aren’t really drivers of the U.S. economy, so competition in this sector isn’t as important as other sectors that wouldn’t be affected by the tariffs anyway. Buying materials from China cheaper than we can produce them allow the country to produce more cheaply and so make up for that deficit in other economic sectors. It would be great if America was a net exporter, but our economy doesn’t rely on it.
In addition to that, the fact that we have a trade deficit with China suggests that if we do enter into a full-on trade war with them, we might not come out on top. This has been evidenced by China’s release of a list of American goods that it might place tariffs on in response to the president’s tariffs, and they would be a lot more economically damaging. If President Trump wants to increase American production of steel and aluminum — which, absolutely, yes, let’s do that — it would be better for all parties involved if he would use domestic incentives rather than arbitrarily punishing China.
That having been said, China deserves to be punished. The country has long practiced shady business deals that require foreign entities selling or producing in China to collaborate with Chinese state-run businesses, which gives the country a cut of the profits and allows them to basically steal trade secrets. Of course, that’s not what President Trump is trying to address with his tariffs, and even if he was, the Chinese government is working on easing up its unfair regulations anyway, largely because they slant trade away from China and because other countries have been filing against these practices with the World Trade Organization for years.
Bringing it all together, there’s an argument to be made against the use of tariffs in the first place, not least of which being because the WTO has banned new tariffs in the interest of mutually beneficial global commerce. Tariffs are largely relics of the mercantile era in which every country thought that the best defense was a good offense. Now that we’ve left the zero-sum policies of eighteenth century politics behind us, all that tariffs are is a repression of free trade that no red blooded American would tolerate if the tables were turned.
