Trump’s Strategic Tariff Use

Are tariffs destructive to both the U.S. economy as well as a threat to global trade in general?
August 18, 2019 Updated: August 18, 2019

The mainstream media, and much of academia thinks America’s tariffs against Chinese products are very bad policy and worthy of harsh and continuous criticism and alarm.

But that’s not necessarily so.

Tariffs Aren’t Always Destructive

Unfortunately, it’s regarded as “common knowledge” that tariffs are invariably destructive and are the cause of strife and recessions. The infamous Smoot-Halley Tariffs of 1930 are typically viewed as a contributing factor to the severity of the Great Depression, and even the rise of Hitler and National Socialism in Germany. But the case of the former is certainly not as clear cut as some would have you believe, and the latter is simply absurd.

Still, the talking points in the media are as plain as they are simplistic: “Trump is a bad president to use tariffs.” But does that mean George Washington was a bad president? What about Lincoln and Reagan? They all used tariffs, and quite liberally, too. Democratic Presidents? Most recently President Barack Obama slapped some hefty tariffs on Chinese tyres in 2009, not much to the chagrin of the leftist mainstream media.

Tariffs Are an Economic Tool Used Often

The truth is that tariffs are really nothing more than a tool nations use to their benefit in certain situations. A brief look back at a few specific periods in American history when tariffs were used is useful.

For example, in the very earliest days of our nation, one of the first laws George Washington signed was the Tariff Act of 1789, imposing taxes on a variety of foreign goods. The tariffs ranged from 5 percent to 50 percent and were intended, among other things, to raise money to pay off debts incurred by the Revolutionary War and protect fledgling American industries from foreign competition.

In fact, tariffs were not only instrumental in our nation’s economic development, they were the primary source of federal income until the implementation of the federal income tax in 1914.

A key aspect of the Smoot-Hawley Act of 1930 was to raise already existing tariffs against European agricultural producers (Fordney-McCumber Act of 1922), to 40 percent. Interestingly enough, the original tariffs did not negatively impact the U.S. economy for the next seven years or so. But eventually, they resulted in over-production by American farmers and collapsing agricultural prices.

And, as recently as the 1980s, Ronald Reagan imposed several tariffs against Japan. Some were used defensively to persuade Japan to open its markets, which worked to some extent. Others were to protect the U.S. automakers and Harley Davidson motorcycles, which were not as successful.

The point is, the impacts of the tariffs differ. Some are good, some are not. When conditions change, tariffs may or may no longer be needed.

And by the way, tariffs were not a cause of the Great Depression. A drastic rise in federal spending and government intervention in the economy combined with the over-expansion of the money supply led to economic overheating and poor investments throughout the 1920s and early 1930s. Then, the Federal Reserve’s tight money policy 1930s triggered a severe deflationary contraction that lasted a decade.

Central planning on to a near Soviet scale by President Franklin D. Roosevelt did the rest to kill an already vulnerable economy and prolonged the depression rather than ending it, as the leftist media would have it.

What About the Market Forces of Free Trade?

As noted above, tariffs are a tool to be used in certain circumstances to achieve specific goals. Trump’s near-term goals are, in large measure, to redefine our trading relationship with China. There are strategic dimensions to that objective, but the immediate need is to eliminate the grossly uneven trading relationship between China and the United States.

The 800-pound panda in the room is the so-called free trade argument, an entirely incorrect and misleading context when discussing China. With its practice of dumping (selling products below costs to capture market share and eliminating competition), slave labor, and masses of disposable workers, China is in no way a free-trading nation. That’s precisely why free trader criticism of Trump and his tariffs ring hollow.

Rather, unlike the United States, China is a nakedly adversarial trading nation. This uneven relationship has resulted in massive transfers of manufacturing and technology out of the United States and into China over the past few decades. That uneven trading relationship is what has led to the immense trade imbalances that we have today.

Trump’s tariffs, on the other hand, while hurting American farmers and manufacturers dependent upon China-made parts in the short run, have already helped promote freer trade elsewhere. Producers are moving out of China to places such as Taiwan, Vietnam, the Philippines and Mexico. Those jobs are leaving China and likely won’t return.

If Trump can get China’s cooperation on renegotiating our trading relationship without a full-blown trade or currency war, then so much the better. As the buyer that China so desperately needs, the United States is finally using its leverage over China. Adding tariffs, or threatening to, gives the Trump administration the flexibility of removing them, delaying them, raising them, etc., in an effort to change China’s thinking.

This last point moves us to the strategic dimensions of the U.S.-China trade war.

Trump’s Strategic Use of Tariffs

For the past couple of decades, China’s ascendancy to global economic leadership was thought to be a foregone conclusion. The best the United States could do was – to use that dreary British phrase – engage in a “managed decline.”

But Trump isn’t interested in enabling China’s rise to global domination. Their ascent isn’t due to their ability to outperform, out innovate and out-plan the rest of the world. Nor is it due to the economic wisdom or business acumen of the Chinese Communist Party (CCP). Those are just CCP political talking points.

China’s success has been largely due to the West’s willing wholesale transfer of its wealth, innovation and markets to China for short term gain. Trump’s strategic objective, therefore, is to put a stop to that process and halt China’s rise to superpower status. That’s why the tariffs are both defensive and offensive in nature.

Trump’s tariffs are specifically intended to protect America’s productive capacity and intellectual property. To some degree, both of these outcomes may be attainable.

But the tariffs are also a proactive effort to undercut China’s ability to continue its adversarial trading practices and to cause China’s productive activity to contract. The thinking may well be that these outcomes may also result in deepening political discord within the CCP and increase discontent due to the weakening and unsustainability of the Chinese economy.

In geopolitical terms, the U.S.’s long-term objectives of the tariffs may be to destabilize the CCP and its grip on China. This may, in turn, help thwart or at least delay Xi Jinping’s ambitions of replacing the United States on its path to achieving global economic and military dominance.

James Gorrie is a writer based in Texas. He is the author of “The China Crisis.”

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.