It’s quite simple, at least in the simplified world of Donald Trump. You want to stem the tide of foreign imports? Just raise tariffs on imports of foreign goods. You want to punish trading partners who are not playing by the rules? Just raise import tariffs across the board. You want to bring back the jobs lost overseas as a result of globalization? Just raise import tariffs to a point that makes these products unaffordable.
Sounds so simple. However, as with most things in life, nothing is as simple as simpletons would have you believe. Raising tariffs is no different. There are ramifications and those ramifications must be factored in to whatever decisions are made regarding tariffs as part of the overall revamping of our trade policy.
In 1789 the very first agency created by the relatively new government of the United States was the the Bureau of Customs later called the United States Customs Service and now called Customs and Border Protection as part of the Department of Homeland Security. It was created for the sole purpose of protecting domestic production in the young nation by applying tariffs on foreign produced products. It was a way of offsetting the advantages of the more established industries found in Europe and, thereby, allow our fledgling industries to be more competitive.
In 1789, great idea. Protectionism was the way to go. 2016 in the world of globalization; not so simple. There will be implications and those implications must not be ignored regardless of the political talking points.
A few years back, under George W. Bush, sanctions were applied to the importation of steel produced in the United Kingdom as a means of protecting our domestic steel industry. Result: retaliatory actions taken by the United Kingdom against imports of American grown agricultural produce.
Even more significantly, the increased cost of importing the steel negatively impacted our own domestic manufacturers of products who utilize the imported steel in the manufacture of their domestically produced products such as the auto industry, furniture manufacturers and a whole host of other domestic producers.
The American steel industry has for some time been in need of protections against foreign made steel due to its extremely slow pace to modernize. Investing in a modernized domestic steel industry might have done more to strengthen our steel industry and keep the jobs lost due to our inability to keep up with the competition of the more modernized steel industries of such nations as the United Kingdom, Japan and China than simply raising tariffs and, thereby, the cost of importing steel.
Now, this is not to say that there are not some instances in which adjusting tariffs would not be appropriate. Instituting anti-dumping duties is one such example. An anti-dumping duty is imposed on foreign imports when it is believed that the product is priced below fair market value and, accordingly, is “dumped” on the U.S. Market. Countervailing duties are instituted when a foreign government provides subsidies to local industry; the countervailing duty is imposed to off-set that foreign subsidy and make the product competitive with the U.S. Market.
The foremost example of the need to apply anti-dumping duties is the case of steel produced by China, the largest steel producer in the world. The United States has imposed anti-dumping duties on steel imports from China at a rate of more than 500 percent.
The Chinese government provides to its domestic steel industry what it refers to as “rebates”. These rebates enable the Chinese exporters of steel to “dump” its steel on foreign markets such as the United States at a less than fair market value and, thereby, significantly undersell it competitors in the competing countries.
Sounds simple enough, but, unless other importing entities such as the European Union do the same, the effect is drastically reduced. In the global economy, unilateral action is never as effective as coordinated action.
In addition, applying an increased, across the board tariff for all Chinese products as suggested by Trump would be extremely counterproductive in this global economy. In a society that has become rather dependent on the affordability of products produced in nations with cheap labor, we’ll call this the Walmart factor, an immediate halt to such imports would drastically impact the lower income Americans who have become so reliant on accessing these products. When was the last time you looked at the country of origin of an imported product and it did NOT say
“Made in China”. That especially goes for much of the products sold by Trump Industries.
Moreover, it is critical to remember that halting the importation of foreign made products, such as wearing apparel as just one example, would not bring back the manufacturing jobs lost over time as the wearing apparel industry slowly but surely moved overseas where the cutting and sewing of garments are done for pennies per hour. Are these the jobs we want back? Are these the jobs our citizens are waiting for? I think not. Certainly not at 63 cents per hour.
The economy of the United States has become one based more on services than on just manufacturing and the jobs we create must take that into consideration. Closing the doors on imports through haphazard tariff rates does not serve that purpose. Closing the door on imports negatively impacts the small businesses in America who rely on those imports or who actually are built around the sale or utilization of those imports.
Never entering into a global economy would have been a great deal easier, of course, than to withdraw from a global economy once having entered into it. This is the lesson that our leaders must acknowledge. There are no simple fixes and those who pose simple fixes to complex realities only serve to expose how little they truly understand the issue.