Tag: Trading

Do Trump’s Tariffs Really Protect Anybody At All?

By Kaycee Ikeonu | Canada

In a 1978 talk, the great economist, Milton Friedman, famously stated that tariffs protect consumers from one thing: “it protects the consumer against low prices!” Friedman, of course, could not have been more right, but his words are ignored with today’s trade wars and tariffs.

Such words of wisdom are essential today amid harsh criticism of free trade from the Trump administration. Some of these critiques include that the United States is losing jobs overseas to countries like Mexico, that the United States has large deficits compared to her trade partners, and most significantly, the need to protect steel and aluminium industries in the United States from going out of business.

An in-depth economic rebuttal of all of these proposals exists. Yet, it is not fully necessary, as the basic rules of economics outline the clear benefits of free trade. Adam Smith, in his famous book, The Wealth of Nations, declares it perfectly. It is in people of any nation’s interest to buy whatever they want from whomever sells it the cheapest.

This is a concept that could not be easier to grasp. When people buy products at lower prices, they then have more money to spend on other goods in the economy.

Now, let’s take a case that is about to happen: The U.S. imposes a tariff on Chinese imports, and now China threatens to put a tariff of $60B on U.S. goods. So, who benefits? The American economy? The American and Chinese consumers now pay a tax on goods. Without the taxes and subsidies on both sides, both countries would strengthen their economies. But instead, they are resorting to subsidizing the hurt regions after hurting them in the first place.

Thus, very few people benefit from this policy. Perhaps, exceptions exist in a few big manufacturers and the ego of the President of the United States.


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President Trump’s Turbulent Trade Tomfoolery

By Indri Schaelicke | United States

Over the past week, much confusion has surrounded the future of the US-China trade war that Trump has moved to start. Just a few days ago, all signs were pointing toward a de-escalation of trade tensions as both China and the US seemed ready to come to the table to make a deal.

But only 2 days later, it appears that the US will be starting this trade war after all. On Tuesday, the Trump Administration announced it would enact 25 percent tariffs on $50 billion in imports by June 15. The White House will also announce investment restrictions on Chinese purchases of U.S. technology two weeks later. The administration’s inability to present a clear, coherent plan threatens the stability of the market as people speculate about the future of  America’s trade policy. Over the past 5 days, the stock price of America’s largest steel producer, Nucor, has fluctuated between $62.50 and $64.50 as instability rocks the steel market. People are unsure about the fate of steel prices and are hesitant to invest in the steel industry.

Beyond instability however, there are several other issues that protectionism fails to consider. Tariffs are put into place in an effort to protect domestic companies and workers from competition from abroad. By placing import tariffs on Chinese products, the Trump administration is hoping that they can promote increased purchases on American produced products. The administration is specifically targeting protecting the steel industry, but the tariffs imposed will affect a multitude of others.

Take a look around you and notice how many things you use everyday are made of steel. The device you are using right now to read this article contains steel components. The car you drive, the tools you use, the appliances in our homes, all have important steel parts. Tariffs on steel will drive up the price of American steel and make it more difficult for companies who create products with steel components to price their own products at an affordable price. When a cost of an input in production rises, so does the final product itself. Steel tariffs will impact many industries and jack up prices across the economy.

Throughout his campaign, Trump was committed to protecting American jobs and making it a global economic force. His solution of imposing protectionist policies is not one that will lead to the greatest economic growth. Rather than isolating the US and hurting our economy, he should be looking to expand it and make it competitive in the global markets.

President Trump has already enacted large scale regulatory reform, a move that will surely help the economy boom. The corporate tax cuts introduced and signed in December 2017 have also reduced the tax strain on corporations and given them greater ability to invest and build their business. Enacting protectionist policies will only reverse the good being done for the economy.

Instead of driving up the prices of US products, which will decrease our net exports as other nations cannot afford our goods and services, Trump should aim to do just the opposite- steps should be taken to lower production costs and therefore lower the costs of final goods and services. Tariffs and other protectionist policies hike up the prices of our goods and services and make them unable to compete in the global economy.

Reducing barriers to trade is one simple way to decrease the cost of production of goods and services in the US. If the White House embraces free trade, it will see America prosper and little loss of jobs.


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