By Benjamin Solomon, Staff Writer
After teasing the idea of enacting tariffs on many countries including United States allies, President Donald Trump announced tariffs on several Chinese exports. China responded to this with tariffs of its own, continuing the trade conflict.
Tariffs refer to a kind of tax levied on imports by a country. These taxes are usually intended to make domestic goods more competitive by driving up the cost of imported goods.
For example, Donald Trump is interested in reviving the steel and aluminum industries in the US. For that reason, the government has levied a tax of 25% steel and 10% on aluminum coming from foreign countries.
To be clear, China is subject to tariffs on more than just those two goods. The US intends to tax imports of over $60 billion worth of products. China’s response is tariffs amounting to only $3 billion of US goods, mostly food.
China may have responded with such lower numbers because they are more targeted tariffs. Raising taxes on agricultural products is going to negatively affect American farmers.
Farmers are one of the groups which Trump claims to support, and who support him back.
This shows that China does not want a full-scale trade war – for good reason.
The United States and China are the two largest economies in the world. China depends on the United States a market for exports, so tariffs are bad for them. For that reason, China likely does not want the situation to escalate.
President Trump likely wants even more tariffs. He is concerned about the US’s trade deficit with China, which totaled to $347 billion in 2016.
That’s $115 billion of American goods exported to China and $462 billion of Chinese goods imported.
China is the largest of several countries the US has a trade deficit with – who are otherwise US allies.
In total, the US has a deficit of $566 billion. At first glance, it makes sense to target China, responsible for most of the trade imbalance.
On second glance, there is a lot more to the picture than these numbers. China sends a lot of goods to the US because manufacturing there is a lot cheaper than in the US.
For that reason, things made in China are largely not things also made in the US.
This is partially because China’s production capacity is so high, and partially because the US’s production capacity is decreasing.
While China has only been ramping up production of cheap goods, the US has generally been shifting to a service-based economy. That means not building stuff but doing stuff.
President Trump is trying to revive industries that are fading away. He’s trying to reverse trends that have been going on for decades.
It’s not going to work, and it’s going to hurt Americans.
When a country enacts tariffs, they tend to do so in order to make their goods less expensive by comparison. Issue arises when domestic goods cost the same and foreign goods also cost more. It’s bad for consumers, who end up having to pay more for the same products they bought before.
Additionally, trade wars do not have a history of working out well for the US. This doesn’t mean just a few tariffs, but expansive import taxes and the cycle of retaliatory action. For example, the Hawley-Smoot Tariff.
The Hawley-Smoot Tariff was put into place in the US in 1930 to combat the effects of the beginning of the Great Depression.
Instead, it encouraged other countries to implement their own tariffs and ultimately worsened the Great Depression.
Despite the facts, President Trump has never been one to learn from history. Why expect him to do so now?