Trump Is Learning the Hard Way That the Chinese Aren't Like Mules
Whoever said the definition of insanity is doing the same thing over and over and expecting a different result could well have been thinking about President Trump’s policy on trade with China. His tariff increases on Chinese goods have not done a thing to move China’s bargaining position, but have done a lot to hurt U.S manufacturing and farmers. And he continues to double down on them.
After re-starting trade talks in Shanghai last week, Trump sprung a surprise tariff increase, raising the prices Americans pay on $300 billion of goods from China. The tariff or tax increases are scheduled to come into effect on September 1st, the same day trade talks between the two countries are scheduled to resume. With these tariff increases, all Chinese goods will be hit by Trump’s trade policy.
The trade war has dragged on for more than a year and a half. Trump has issued a series of tariff increases, followed immediately by tariff retaliation from China. Trump seems to be playing whack-a-mole with trade. But the ones who are mainly getting whacked are U.S consumers.
While Trump has claimed that somehow China pays the tariff, in fact the tariffs are imposed on U.S importers, which pay some and pass some on to their American customers. IMF research found that U.S importers “almost entirely” bear the cost, rather than Chinese exporters.
The study by two University of Chicago economists found that a 20 percent tariff on washing machines, for example, resulted in a 12 percent increase in costs to U.S consumers. Even companies such as Whirlpool, which are not subject to the tariffs, have used them as an excuse to raise prices. The study found that every job saved thus far has cost consumers $815,000.
Moreover, the tariff increases have substantially driven up the cost of production for U.S-based companies. Over 60 percent of U.S imports are used by businesses in their products and production processes. By making these goods more expensive, Trump’s tariffs have increased the cost of U.S-made goods, undermining U.S export sales as well as driving up costs to American consumers.
The effects of Trump’s trade war were a factor in the Federal Reserve Board’s decision Wednesday to cut interest rates in an otherwise healthy economy. Chairman Jerome Powell pointed repeatedly to the uncertainty caused by Trump’s trade wars as an important reason for the rate cuts.
Some have questioned whether the trade war is as harmful to China as it is to the United States. Trump’s former economic adviser, Gary Cohn, told the BBC that the trade war actually provides China with an excuse to address economic concerns that were already apparent in a slowing of the Chinese economy. But, Cohn says, the trade war is having a “real impact” in parts of the U.S economy such as automobile manufacturing and farming.
There is a story about a farmer who used to smack his mule with a 2 by 4 every time it didn’t do something he wanted it to. The strategy works with mules. It doesn’t seem to with China.
