Monday

August 20th, 2018

Insight

Tariffs --- No, But Give Me A Solution

Bruce Bialosky

By Bruce Bialosky

Published April 17,2018

Everything I have learned as a capitalist and a Republican is that tariffs are counterproductive. They are hidden taxes that raise the price of the goods we buy and harm trade with other countries, which is not good for America or for our trading partner. If that is so, then provide us with another path to solving the China trading problem. 

President Trump probably made a mistake with going after steel and aluminum importers as a class. Certainly he has a point that we must maintain our own production capabilities in those areas, but just because our industries are suffering does not mean the exporting country is cheating. In each case, his administration needs to lay out out specifics. If Canada had a 20% tariff on our steel while we had a 2% tariff on theirs, that would be a problem. If negotiations failed to remedy the matter, then an effective case could be made for changing our import policy regarding that specific good from that specific country.

That is part of the reason that hysteria has run rampant from open traders. Armageddon will befall us if Trump actually imposes these tariffs and a “trade war” will ensue. When you invoke the word “war,” it conjures up a vivid picture of devastation in the future. Then if they really want to scare you they will whisper the scariest words in the open trade arsenal: Smoot-Hawley.

A perfect example (amongst a sea of such) is an editorial from Investor’s Business Daily (IBD). To quote the editors, “But trade disputes and tariffs have a history of becoming nasty economic downturns. There is, of course, the Smoot-Hawley tariffs, which caused a massive contraction in global trade and output in the late 1920s and led to the Great Depression.” That is funny since Smoot-Hawley was not enacted until June 1930

To be fair, some say the floating of the idea caused the market crash eight months before. That is questionable because the signing of the bill was in doubt until the end with over 1,000 economists presenting a letter in May 1930, to pressure President Hoover not to sign the bill. Also, in 1922, Congress passed and President Harding signed the Fordney-McCumber Tariff. You never heard of those extensive tariffs being a problem because for the next seven years the economy boomed (Roaring Twenties). Also, international trade was a much smaller aspect of our economy and the international economy at the time.


It may be that it is as much a fable that Smoot-Hawley was a cause of the Great Depression as Hoover’s government interventionist policies or Roosevelt’s New Deal helped in any way to cure the Depression. 

The biggest problem of Smoot-Hawley was that it was a broad-based act covering an estimated 20,000 goods. It was meant to protect American industries that were over producing. Times have changed.

President Trump has it correct that many countries take advantage of our open economy and restrict our companies from fairly competing in their countries. Where he is wrong is just because there is a trade imbalance with a country doesn’t mean that country is cheating. One country that we know is cheating is China. 

The people who call out Trump on the China tariffs have been lax in floating alternatives. Even the op-ed pages of the Wall Street Journal (as a reader of my column, you likely know I have said for decades the op-ed pages are the only daily, must-read) are lacking. Those smart people who write their editorials have been errant in their position. 

A recent editorial chastised the Trump tariffs, but offered nothing. They ended by saying “China’s trade abuses need to be addressed, but Mr. Trump’s tariffs first strategy risks punishing America first.” I have yet to read the WSJ strategy or anyone else’s that represents a viable alternative. Worse, their statement plays into the Chinese Communists' hands as they are convinced we will fold because of our unwillingness to suffer a little to bring them into conformity with accepted world trade norms. I am sorry, but the pillaging of our intellectual property is more important than your sales to the Chinese. 

Some of the ideas I have read are just tariffs of a different color. Probably the most effective idea would be for the Group of 20 to collectively go the World Trade Organization (WTO) and lay out the case that everyone already knows; China is cheating us. Therefore, if they are cheating us they are cheating everyone else. If the countries of Europe, Canada, Japan and the other members of the Group of 20 stood together and said “No More” to China then maybe China would change its cheating ways. 

The problem that we face are the multitude of sell outs amongst those countries including our closest European allies. The Chinese see that we caved to Iran even though Iran has boldly cheated on the treaty; our allies refuse to discipline Iran because they are selling themselves with sales to Iran. China sees that and they believe the West has no will.

Trump’s implementing tariffs on China would have the purpose of expanding free trade for everyone, not the reverse. Tariffs are part of a strategy, not an endgame. 

This country has been abused for decades by the Chinese in our reciprocal financial relationships. We have squealed like schoolchildren and thrown up our hands and said, “what are we to do?” 

Trump has said no more. If you don’t like the tariffs then submit a better plan, but don’t just stand on the sidelines and whine.  

Bruce Bialosky is the founder of the Republican Jewish Coalition of California and a former Presidential appointee.

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