By Indri Schaelicke | United States
For months now, it seems that everyone but the president himself has been shouting about the harms of protectionist trade policies. Despite all the outrage, though, the President has stuck to his plan, slapping China and the EU with high tariffs.
The Harms of Trump’s Tariffs
Tariffs are harmful because they raise the price of inputs to production, such as steel and aluminum. This in turn raises the final price of goods and services. In order to keep up with increased production costs, companies often must lay off workers or cut hours. Additionally, some products may become too expensive for many, due to the increased cost.
These tariffs have done great damage to the auto manufacturing industry and hurt many farms. In fact, even President Trump himself recognizes such damage. But rather than scaling back tariffs, he is giving emergency aid to affected farms. Ironically, the places most hurt, South Carolina and the Midwest, voted heavily for Trump in 2016. Both regions went red, and played a great part in propelling him to a Presidential win.
However, rather than rewarding his supporters, the president has taxed them and other Americans twice. Tariffs are a tax on imports that consumers and businesses must pay. They impose no direct financial damage on countries that they target. In fact, the tariffs only harm the consumers, while the governments get to fill their coffers. In a world where countries have many different trading partners, one country placing tariffs against them will do no significant harm. Tariffs only harm the citizens of the country levying them.
Americans will also be forced to pay for the emergency aid for farms that have been hurt by the escalating trade war. The Trump Administration Department of Agriculture proposed a $13 billion package to bail out farmers, and with the government already so far in debt, Americans will eventually have to foot the bill somehow.
A Sudden Reversal?
After several months of executing this terrible trade policy, though, President Trump is starting to realize how harmful it is. On Wednesday, Trump tweeted that the EU and the US would try to work together and eliminate all barriers to trade.
The European Union is coming to Washington tomorrow to negotiate a deal on Trade. I have an idea for them. Both the U.S. and the E.U. drop all Tariffs, Barriers and Subsidies! That would finally be called Free Market and Fair Trade! Hope they do it, we are ready – but they won’t!
— Donald J. Trump (@realDonaldTrump) July 25, 2018
This is a complete turn around from a tweet the president posted just 12 hours before, in which he praised tariffs and their outcomes.
Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that – and everybody’s talking! Remember, we are the “piggy bank” that’s being robbed. All will be Great!
— Donald J. Trump (@realDonaldTrump) July 24, 2018
This incredible flip in trade policy is exactly what America needs to fix the damage caused by the current protectionist policies. Free trade allows businesses to import inputs in production with lower costs, thereby decreasing the final price of the good or service. Free trade also involves no government intervention, helping to limit the size and scope of government in a time when government just seems to be growing by the minute.
Protecting an industry from competition makes it so that the industry does not need to improve and innovate. Competition is the number one driving force behind innovation. Companies invent new, better products because they want to attract customers. They are in a constant struggle with each other to gain the edge, and innovation helps this occur.
Trump’s flip to a free trade position is a much welcomed development. Unrestricted free trade will improve the quality of living for millions of people.
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