The global trade war is only intensifying, and not a single party is submitting in this fight on the world stage. Every time the U.S. introduces new tariffs, China responds with its own tit-for-tat retaliation, which then causes Washington to retaliate to the retaliation. A trade war is hard to win, and there are many victims on the road to supposed victory. But President Donald Trump may have a solution.
President Trump recently took to Twitter to propose a remedy to the brewing global trade tensions: abolish all tariffs and remove every obstacle that impedes international trade. This is something that even the most diehard Milton Friedman disciples can get behind. Unfortunately, it is unlikely that leaders such as Canadian Prime Minister Justin Trudeau and Chinese President Xi Jinping would agree to these conditions – and that’s a shame.
The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!
— Donald J. Trump (@realDonaldTrump) June 24, 2018
The art of the deal, 4D chess, or a truce? Whatever the case might be, it would be a win for the free market.
For years, major U.S. trading partners have implemented protectionist policies aimed at shielding domestic industry from foreign competition while hurting consumers at home. Despite their recent whining and griping about President Trump’s mercantilism, these leaders have erected their own trade barriers and restrictions
Canada has a 270% tariff on milk, the European Union (EU) maintains a 73.7% tax on steel, and China boasts a 12% levy on footwear imports. Although some objections to President Trump’s recent trade measures are justified, it is hypocritical for these countries to even criticize the U.S., considering their own massive impediments to trade.
As the saying goes, those who live in glass houses…
Firing Reciprocal Bullets is Bad News
On one hand, President Trump should be commended for extending an olive branch. Like the North Korea peace process, if he were to get the globe to scrap tariffs altogether, it would be another reason for Trump to claim next year’s Nobel Peace Prize. Let’s hope he succeeds.
On the other hand, repeatedly firing reciprocal bullets will continue to hurt American industries, from manufacturing to agriculture. The victims are already starting to pile up at home and abroad. Soybean farmers are on the cusp of entering a depression, orange growers’ suffering will persist, locker makers are struggling to survive, and the lobster industry is beginning to feel the impact of the trade spats.
Harley-Davidson made headlines when the company announced it plans to send some of its production out of the U.S. to avoid EU tariffs. The company warned that each motorcycle will cost roughly $2,200 more once the 31% levy on imported U.S. bikes goes into effect, adding as much as $100 million to its annual costs. Harley-Davidson, whose stock cratered by nearly 7% at the news, sells more than 40,000 bikes in Europe every year.
“Harley-Davidson believes the tremendous cost increase, if passed onto its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region,” the company said.
This could be the norm until someone makes a concession or prescribes a policy solution.
The question then becomes: what happens when the next inevitable recession strikes the U.S.?
Get Rid of State-Managed Trade
Alas, this is the problem with government-managed trade.
Commerce is taken hostage by politicians and bureaucrats who want to beat their chests while businesses and consumers endure the consequences. War of any kind is always an obstruction to finance, yet we continue to shed pecuniary blood for hollow victories.
Though the president is on the right track and would be better off to simply eradicate all of America’s trade barriers, Trump could take it one step further: recommend eliminating all trade pacts to permit genuine free trade without rules, regulations, restrictions, and taxes. The odds of that happening are slim to none, but if he wanted to gain some allies on the trade file, then this would be a sign of good faith.
Until the final tariff bullet is shot, the international marketplace massacre will linger on, leaving behind immense destruction – closed businesses, weakened industries, and poorer consumers. That’s not winning, that’s tragic. Why do we never learn from our past mistakes?
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