Nobody wins a trade war. Trump has been told this many times, yet his ignorance of how trade works has led him to double down on his stupidity.
President Donald Trump announced a new round of tariffs late on Monday, slapping a 10 percent tax on a $200 billion list of Chinese imports ranging from consumer goods to manufacturing materials. The new tariffs, effective September 24, will rise to 25 percent by January 1.
Before delving into the damaging effects this action will cause, let’s look at how we got here: Trump doesn’t understand how trade works.
The United States has a trade deficit because the United States is the wealthiest country in the world. We use that wealth to buy stuff. The trade deficit exists because we buy more than other countries buy. Bringing down the trade deficit would be an indication that we are getting less wealthy with relation to the rest of the world. To further betray his complete lack of knowledge about a subject he has made a defining issue of his Presidency is this completely ridiculous statement from that same rally:
You know, if I get the trade deficits down they never tell you this, if I get the trade deficits down, bring them down. If I bring the trade deficits down, we could pick up three and four points in GDP. Nobody says that, nobody says that.
Do you know why nobody says that? Because it is not remotely true.
Trade deficits are not a bad thing. They simply mean we are getting more stuff by sending out less stuff. They are a sign of a wealthy country.
The other ridiculous aspect of all of this is that Donald Trump’s proposed solution to the non-existent problem of trade deficits is a trade war that will do nothing about the trade deficit. All it will do is reduce the amount of overall trade. We may import less, but we will also export less. In fact, so far, Trump’s trade war has only increased the trade deficit he keeps griping about.
New data out Wednesday showed the U.S. trade deficit in July widening at its fastest rate since 2015 as monthly deficits with China and the European Union both hit new records. In the year so far, the U.S.’s overall goods and services deficit is up by $22 billion, or 7 percent, versus the same period last year.
So, Trump’s trade war is actually widening the trade deficit he wants to decrease (for no good reason). And, back to his comment about increasing GDP: it is set to do the exact opposite. Because the one thing that trade wars do is reduce the amount of overall trade, which is not good for any economy involved in the trade war.
Andrew Hunter of Capital Economics said the trade data released on Wednesday indicated that after boosting GDP figures in the second quarter, net exports would subtract from it in the second half. In the third quarter, he predicted, net trade would subtract more than a percentage point from GDP growth
Donald Trump has no idea what he’s doing, and what he’s doing is going to hurt consumers, erasing whatever meager wage growth they might be experiencing by making the things they buy more expensive.
President Donald Trump said Monday that China is paying the U.S. billions of dollars in tariffs as he ramps up his trade war with Beijing. But that’s inaccurate: American consumers and businesses are the ones who will be paying higher costs for imports after he slapped penalties on $200 billion in Chinese goods.
The duties, which go into effect Sept. 24, amount to a 10 percent tax on everything from Christmas lights to bicycles and are likely to be passed on to consumers ahead of the holiday shopping season.
And it isn’t just finished goods that will be more expensive, it is also parts used for manufacturing by auto companies:
New tariffs imposed by President Donald Trump on auto parts from China will hit carmaker profits, cut sales and threaten to “start a downward cycle” in the critical industry, analysts said unanimously Tuesday.
In addition, if you’re in the market for a new car, you probably should get to a dealership soon, because prices are going up.
Trump’s latest round of tariffs on Chinese imports will add costs to more than 100 car parts — a 10-percent levy on everything from tires and brake pads to engines and batteries — that go into cars made and sold in the U.S.
These are just some of the possible damaging effects of the action taken by Trump. But, besides the problems caused by increasing the costs of imports, trade wars also cause a problem for exports in the form of retaliation. And that is exactly what China did, almost immediately:
China will impose retaliatory tariffs on $60 billion of American-made goods, hitting back at the U.S. just hours after President Donald Trump announced a massive escalation in tariffs on $200 billion in imported goods from Beijing.
The Chinese Finance Ministry announced Tuesday it would go ahead with plans announced in August to tax 5,207 types of U.S. imports, ranging from coffee to farm machinery.
This retaliation will cause more issues like those that have already been seen in the Midwest:
Omaha-based Green Plains says it’s idling production at a northwest Iowa ethanol plant, but the facility remains open and its nearly 50 employees continue to work.
Jim Stark, Green Plains spokesman, said the company plans to resume production at Superior, but he’s unsure exactly when that will occur. The facility employs 46 workers.
Ethanol futures prices dropped to a 13-year low last month, an industry report showed.
Ethanol demand for the year failed to materialize, given trade disputes with China and lack of federal action allowing for year-round use of gasoline with 15 percent ethanol, Stark said.
China boosted tariffs on ethanol imports to 45 percent this spring as trade tensions escalated.