Sunday, June 03, 2018

Donald Trump's Trade War Will Hurt All Americans

Donald Trump has said a trade war is good, and can easily be won by the United States. He is wrong, and his new tariffs, that have kicked off a trade war will wide up hurting all Americans.

Let's be clear about one thing to start -- the tariffs are a new tax on American consumers. They may be levied on the products coming from other countries, but those countries won't be paying the higher tariffs (taxes) -- American consumers will be paying them.

Some of you may be thinking that consumers can avoid paying those new taxes by just buying American products instead. That's wrong. Why did Trump impose the tariffs to begin with? It was because those foreign products (aluminum and steel) were cheaper that the aluminum and steel produced in the United States. Whether you buy the foreign products or the American products, you will be paying more -- and that excess payment amounts to a new tax (a tax NOT approved by Congress). And the higher prices won't just be in aluminum and steel, but will be seen in every American industry that uses aluminum and steel.

In other words, there is no way an American consumer can avoid paying Trump's new tax -- and that new tax will hurt ordinary Americans far more than it will hurt the rich (since the rich pay a much smaller percentage of their income for consumer goods than most Americans must pay).

And it won't just be higher taxes that will affect Americans. The entities that had a tariff placed on their products are responding with tariffs on American products. Those tariffs will negatively affect American farmers and industries -- and could cost workers their jobs.

The chart above is from Business Insider. It shows the effect the new tariffs levied by Canada will have on the individual states. The states in the darker colors will suffer the biggest hit, but all states will be affected. And that chart just shows Canada's reaction. Don't forget that Mexico, the European Union, and China are also responding with tariffs on American products. This could get real ugly really fast.

And we may not be seeing the worst. The White House advisors have said there may be more tariffs to counter the tariffs put on American products. This could be just the start of an escalating trade war.


This would be a good time to look at a bit of American history. In the late 1920's, the gap in wealth and income between the rich and the rest of America was enormous. And Republicans decided that they needed large tariffs to help American industries (especially after the stock market crash of 1929), so they passed a huge tariff bill (Smoot-Hawley Act) in 1930. The result was the Great Depression.

We now have a wealth and income gap as large as that of the 1920's, and a new tax law that will make that gap much larger. And we have the start of a trade war with new tariffs -- a trade war that could easily get out of hand. Are we setting ourselves up for a repeat economic disaster? It's certainly not beyond the realm of possibility.

if there is a saving grace in all this, it is that most Americans don't think tariffs are good economic policy (see chart below). Even Republicans are opposed. Maybe public opposition can compel Congress to stop the trade war.

The chart below shows results from a recent Politico / Morning Consult Poll -- done between May 23rd and 29th of a national sample of 1,995 registered voters, with a 2 point margin of error.

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