Completely free trade
with no tariffs is best in an ideal world. But, we don’t live in an ideal
world. And, for better or worse, President Donald Trump is a decision maker who
seeks to make decisions that change things. He often plays “hardball”—sometimes
successfully, sometimes not.
Friday, May 10, 2019,
President Trump took action to raise tariffs on imports to the United States
from China according to numerous news reports, such as the ones linked in this
sentence from CNN,1 Reuters,2 and CBSNews.3 China responded by
raising tariffs on some imports to China from the United States.
Raising Tariffs Vs. Free
TradeAre
tariffs a good thing? Other things being equal, I strongly prefer free trade
without any tariffs. Tariffs typically raise prices for consumers and decrease
the quantity and variety of good available. Tariffs also reduce the amount of
trade between countries, because the higher prices typically result in persons
buying fewer imports.
Furthermore,
many products must be imported. For example, bananas are probably my favorite
fruit. And, here in the United States, we don’t grow bananas, so they must be
imported. I would be upset if a high tariff created a banana shortage or higher
prices for them. Of course, bananas from other countries are not part of the
trade dispute with China, but the United States does import a huge quantity of a
wide variety of items from China. Look at the labels on many items you purchase
to get an idea.
As stated earlier, tariffs often have negative effects. When the United States, China, and other nations set tariffs, they limit trade, which typically results in fewer items being available for purchase and their prices being higher.
Trump’s Logic in Raising
Tariffs on Imports from China?
Perhaps
only President Trump knows his complete logic in raising tariffs on imports
from China. But, my guess is that Trump feels that China needs us more than we
need them.
Therefore,
by raising tariffs, which make Chinese exports to the United States more
expensive and will likely lead to a decrease in Chinese sales, Trump can pressure
the Chinese government to make a fairer trade agreement with the United States
and reduce the unfair trade practices China has allegedly (almost certainly?) been
engaging in with the United States and many other countries.
A
post
from the President on Whitehouse.gov4 nearly a year ago
discusses some of these allegedly unfair practices. Furthermore, other nations,
such as Japan and members of the European Union, are also upset about Chinese
trade practices, as noted by numerous articles, including a 2018
Financial Times piece.5
A
main goal of the increased tariffs is probably to get China to reach a trade
agreement with the United States that makes the international trade between the
country fairer, more beneficial to the United States than it is now.
Free Trade Agreements
Ideally,
I would love to see completely free trade between all countries, as long as
products are produced and transported safely and fairly. However, the
governments of some nations do not do regular inspections in factories and
other production facilities to help ensure quality and safety, do not take
steps to prevent copyright and patent infringement, etc.
Nations
and groups of nations negotiate, approve, and enforce trade agreements to help
progress toward fair, free trade. The United States and China are seeking to
find enough common ground to achieve a trade agreement between the countries. I
hope they do. But it isn’t easy.
You
are probably familiar with the North American Free Trade Agreement (NAFTA),
which took effect between the United States, Canada, and Mexico in 1994. While
I believe this helped improve trade between the countries and was a good thing
at the time, it had numerous weaknesses which I won’t take time to detail here.
Furthermore,
the NAFTA document was 2,000 pages long according to an article on thebalance.6 Like many other “free
trade” agreements, it contains numerous provisions that show favorable
treatment to various groups in the three countries. I would think that a true
free trade agreement would be only a few pages long. Would you want to be a
businessperson seeking to establish, maintain, or expand an international
business and supposedly be responsible for reading and adhering to this lengthy
agreement?
Even
reading the sections pertinent to a particular business would be time
consuming. I wonder if anyone has actually read the entire agreement. One of
President Trump’s campaign pledges was to replace NAFTA, and a proposed
revision to it is currently going through the ratification process.
A
Chinese fair/free trade agreement likely won’t be a simple document either, if
one is produced from ongoing negotiations. But, it can be a big step in the
right direction.
Closing Thoughts
As
I see it, one of the biggest successes of modern society is the widespread
trade between countries around the world that enables the economies of various
nations to produce and sell more goods than they otherwise could—while allowing
citizens around the world to enjoy a wider variety and greater quantity of
products than ever before. And, trade agreements are helping gradually improve
work conditions and quality of products worldwide, while continuing the
expansion of trade, as I see it.
However,
in the short term, higher tariffs on goods coming to the United States from
China (and vice versa) may decrease this trade between the two nations. The Chinese may suffer
more than the United States, which will (I’m guessing Trump hopes) give the
Chinese government incentive to reach an agreement with the United States (or
better yet with some other countries around the world, too) that leads to
fairer, freer trade between the countries. If such a trade agreement is
reached, and it leads to even more trade between the countries, it will be a
win-win situation. And part of that win-win situation could be Chinese
consumers benefitting from more United States products appearing in Chinese stores
at cheaper prices.
President
Trump seems to have a history of making quick decisions to help institute
changes he wants. Some decisions work out; some do not. Time will tell if his
gamble in raising tariffs on Chinese imports will work.
My
optimistic guess is that Trump’s “hardball” pressure will help lead to a trade
agreement between the two nations that benefits both countries. In an ideal
world that agreement would come without a tariff increase, but my sometimes
idealistic outlook is perhaps less constructive than Trump’s more pragmatic
approach in our real world.
ENDNOTES:
1 Pham, Sherisse; The US just raised tariffs on
Chinese goods. China says it will hit back”; CNN; May 10, 2019; webpage
accessed May 11, 2019; https://www.cnn.com/2019/05/10/business/china-us-tariffs-trade/index.html
2 Lawder, David and
Pamuk, Humeyra; “Trump ratchets up tariff threat after talks show no progress”;
Reuters; May 10, 2019; webpage accessed May 11, 2019; https://www.reuters.com/article/us-usa-trade-china-tariffs/trumps-tariff-hike-on-200-billion-of-chinese-goods-takes-effect-idUSKCN1SG08X
3 “Trump’s tariffs on
China: How do they work and what do they aim to achieve”; May 11, 2019; webpage
accessed May 11, 2019; https://www.cbsnews.com/news/tariffs-on-china-what-are-they-and-how-do-they-work-and-what-do-they-aim-to-achieve/
4 Trump, President
Donald; “President Donald J. Trump Is Confronting China’s Unfair Trade
Policies”; White House website; May 29, 2018; webpage accessed May 12, 2019; https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-confronting-chinas-unfair-trade-policies/
5 Mitchell, Tom;
“Trade wars: China fear an emerging united front”; Financial Times; September
11, 2018; webpage accessed May 12, 2019; https://www.ft.com/content/ee361e2e-b283-11e8-8d14-6f049d06439c
6 Amadeo, Kimberly;
“What Is the North American Free Trade Agreement? Six Things NAFTA Does”;
Webpage updated October 31, 2018; webpage accessed May 11, 2019; https://www.thebalance.com/nafta-definition-north-american-free-trade-agreement-3306147
DISCLOSURE:
The
author’s second job is as a part-time store clerk at a retailer. This retailer
will probably be impacted by the increase in tariffs on imports from China due
to many of its products coming from China.
NOTE:
This
piece being submitted to Google Blogger on May 13, 2019 is updated from one
submitted to Craft News Report (a website operated by the author's friend Paul Craft) on May 12, 2019.
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