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Tariffs Forever!

Irwin M. Stelzer

If you missed the latest threat from President Trump as he continues to huff and puff in his effort to blow down the protectionist wall Xi Jinping has erected in his effort to make China great again, here it is: A 25 percent duty on $50 billion is in place, tariffs on another $200 billion are being considered, and a third round on $267 billion of imports is “ready to go . . . if I want”—you, know, if China makes him really, really angry. That would cover just about everything we import from China.

Until now, Republican politicians who cling to their historic support for free trade have consoled themselves with the notion that Trump’s tariffs are aimed at bringing America’s trading partners to the bargaining table. There, he will explain to them that if they want continued access to the massive American market, they will have to give the United States fairer access to their markets. The result—according to such as his economic adviser and free trade apostle, poor Larry Kudlow—being that the parties will agree to remove all barriers to trade and we will move forward to broad sunny uplands of a barrier-free world order.

Trump is winning, if by “winning” we mean succeeding in getting America’s trading partners to come to the negotiating table to consider just how to replace a system that disadvantage the United States. Mexico imports auto parts from China, incorporates them in allegedly made-in-Mexico cars, and sells them in America under the duty-free cloak of the North American Free Trade Agreement. China forces American companies seeking a foothold in the People’s Republic to turn over such intellectual property as it has not already stolen. The European Union levies a 25 percent tariff on made-in-the-USA vehicles while paying one-tenth of that rate on autos shipped to America. There’s more, but you get the idea: the White House grievance-collector-in-chief has reason for dissatisfaction with the existing state of affairs.

Which he has completely disrupted. But what next? It seems increasingly clear that Trump’s claim to be aiming for a tariff-free world, which was confected for him by supporters embarrassed to be associated with a protectionist, is bogus. Consider, first, the deal his team has just negotiated with Mexico (not all of which details are yet available). Trump got much of what he wanted: an increase in components of cars made in the United States (and by $16-per-hour workers) among his winnings. But he did not agree to roll back tariffs on steel and other imports from Mexico. They remain.

Or consider his reaction to the European Union’s surprise acceptance of his demand that all trade in autos be duty free—“Not good enough.” Perhaps Trump belatedly realizes that U.S. manufacturers of highly profitable pick-up trucks and vans would howl if the 25 percent tariff the U.S. levies on those imported vehicles were removed. Or that his desire to see more Chevy SUVs on the streets of Europe would require wider streets and far lower gasoline prices. In any event, Trump isn’t about to strike a free-trade deal with the European Union. The Brussels eurocrats are dragging out current negotiations on the pretext that they are required to check each detail of the negotiations with their 28 member-states for permission to proceed—a new-found respect for national sovereignty. Trump is not famous for his patience with protracted dithering, and E.U. delay is likely to trigger an explosion of new tariff threats.

Then there are the upcoming congressional elections, only 51 days away. The Democrats have long been expected to take control of the House of Representatives, and now are given a real chance of winning control of the Senate as well: even Texas may be in play. Democrats, in part because they are beholden to their trade union masters for cash and door-bell ringers on the campaign trail, have never shared Republicans’ enthusiasm for exposing American workers to competition from under-$4-an-hour Chinese workers and $2.30-per-hour Mexican laborers. After Trump is gone, they will support this lurch to protectionism, not as a bargaining weapon, but as a permanent feature of economic life.

Finally, there is the not-small matter of the president’s irremediable ignorance of economic affairs, combined with his tendency to confuse wish with reality. When Apple CEO Tim Cook complained that tariffs would drive up the cost of made-in-China gadgets, Trump became Apple’s business consultant. Make iPhones here, avoid the tariffs and you will have no need to raise prices, he insisted. But the transfer of manufacturing operations to America would surely result in higher costs of production, necessitating price increases. Otherwise, Cook would not have been producing Apple’s iThis and iThat in China in the first place. Also, replacing $2.30 per hour with $16 per hour labor in vehicle manufacture is not exactly the basis for lowering prices. Trump must realize that—or, worse still, he doesn’t.

One of the consequences of the trading system Trump is attempting to upend has been a transfer of jobs from the United States to China and other countries, and incomes from horny-handed sons of toil to American consumers. This has had a devastating effect on many communities, one of which the establishment elite ignored—to its peril as it turned out—in the last election. It also benefited American consumers, as Walmart stocked its shelves with low-priced sneakers and flat-screen television sets. In effect, there was a massive transfer of income and wealth from producers—steel workers, mill hands in the apparel business, little old ladies sewing, t-shirts—to consumers in the form of lower prices. And those low prices allowed the Fed to keep interest rates low, raising the value of shares and other assets while lowering returns on savings accounts, which further helped the more wealthy at the expense of the less well-off.

Those days of wine (imported from France) and roses (imported from Ecuador) are about to end.

Trump likes tariffs. He believes—really believes—that imports impoverish America and exports enrich it, that a trading partner that runs a surplus with America is preventing America from becoming great again, as much an enemy of the people as the media. The president undoubtedly will ask his French counterpart, Emmanuel Macron, to introduce him to that financial wizard Jean-Baptiste Colbert, when next he visits Paris to view one of those parades of which he is so fond.

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