Thu, Apr 12, 2018 - Page 9 News List

Trump’s trade confusion

While the US president captures the world’s attention with import tariffs, serious global trading issues are being left unaddressed

By Joseph Stiglitz

Illustration: Mountain people

The trade skirmish between the US and China on steel, aluminum and other goods is a product of US President Donald Trump’s scorn for multilateral trade arrangements and the WTO, an institution that was created to adjudicate trade disputes.

Before announcing import tariffs on more than 1,300 types of Chinese-made goods worth about US$60 billion per year, Trump early last month unveiled sweeping tariffs of 25 percent on steel and 10 percent on aluminum, which he justified on the basis of national security.

Trump insists that a tariff on a small fraction of imported steel — the price of which is set globally — will suffice to address a genuine strategic threat.

However, most experts find that rationale dubious. Trump himself has already undercut his national-security claim by exempting most major exporters of steel to the US.

Canada, for example, is exempted on the condition of a successful renegotiation of the North American Free Trade Agreement, effectively threatening the country unless it gives in to US demands.

However, there are a host of issues in contention, involving for example lumber, milk and cars.

Is Trump really suggesting that the US would sacrifice national security for a better agreement on these minor irritants in US-Canadian trade?

Or perhaps the national security claim is fundamentally bogus, as Trump’s secretary of defense has suggested, and Trump, as muddled as he is on most issues, realizes this.

As is often the case, Trump seems to be fixated on a bygone problem.

Recall that, by the time Trump began talking about his border wall, immigration from Mexico had already dwindled to near zero, and by the time he started complaining about China depressing its currency’s exchange rate, the Chinese government was propping up the yuan.

Likewise, Trump is introducing his steel tariffs after the price of steel has already increased by about 130 percent from its trough, owing partly to China’s own efforts to reduce its excess capacity.

However, Trump is not just addressing a non-issue. He is also inflaming passions and taxing US relationships with key allies.

Worst of all, his actions are motivated by pure politics. He is eager to seem strong and confrontational in the eyes of his electoral base.

Even if Trump had no economists advising him, he would have to realize that what matters is the multilateral trade deficit, not bilateral trade deficits with any one country.

Reducing imports from China will not create jobs in the US. Rather, it will increase prices for ordinary Americans and create jobs in Bangladesh, Vietnam or any other country that steps in to replace the imports that previously came from China.

In the few instances where manufacturing does return to the US, it will probably not create jobs in the old Rust Belt. Instead, the goods are likely to be produced by robots, which are as likely to be located in high-tech centers as elsewhere.

Trump wants China to reduce its bilateral trade surplus with the US by US$100 billion, which it could do by buying US$100 billion worth of US oil or gas.

However, whether China were to reduce its purchases from elsewhere or simply sell the US oil or gas on to other places, there would be little if any effect on the US or global economy.

Trump’s focus on the bilateral trade deficit is, frankly, silly.

Predictably, China has answered Trump’s tariffs by threatening to respond to their imposition with tariffs of its own. Those tariffs would affect US-made goods across a wide range of sectors, but disproportionately in areas where support for Trump has been strong.

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