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Undeterred by Republicans, conservative activists, and free market think tanks, President Donald Trump introduced new tariffs on steel and aluminum imports on Thursday. The 25% duty on steel and the 10% penalty on aluminum will go into effect in 15 days, exempting Canada and Mexico indefinitely amid North American Free Trade Agreement (NAFTA) negotiations.
Joined by American steel and aluminum workers in the Roosevelt Room, the president said they have been “betrayed” for so long and now “that betrayal is over.” Trump vowed that the protectionist measures will be in retaliation to the “assault on our country” by foreign adversaries.
Although he temporarily excused the nation’s two neighbors from the mercantilist approach, Trump appeared to be apprehensive about adding further names to the exemptions list. There are reports that he may also remove Australia from the import restrictions.
He told reporters:
“Today, I am defending America’s national security by placing tariffs on foreign imports of steel and aluminum.
The countries that treat us the worst on trade and on military are our ‘allies,’ as they like to call them. The workers who poured their souls into building this great nation were betrayed. But that betrayal is now over.
We’re going to be very fair, we’re going to be very flexible but we’re going to protect the American worker as I said I would do in my campaign.”
The Trump administration has been busy on the trade file since Inauguration Day. The U.S. government has slapped a tariff on Canadian softwood lumber and aerospace technology, as well as Chinese solar products and aluminum foil.
The World Answers to New Tariffs
On Wednesday, European Union Trade Commissioner Cecilia Malmstrom promised “very soon” a comprehensive list of U.S. products that could face steep tariffs. The provisional list contains a diverse array of American imports: bourbon, cranberries, peanut butter, and orange juice – Florida’s orange growers have been in a depression for about a decade now, and any further strain would kill farmers.
Malmstrom also noted that Brussels could take the U.S. government to the World Trade Organization (WTO) or even coordinate a retaliatory effort by several trading partners.
China has already confirmed that it will propose countermeasures to U.S. taxes. Chinese Foreign Minister Wang Yi did not elaborate on any measures Beijing might take, but American farmers are worried. The world’s second-largest economy imports close to 100 million metric tons of soybeans per year, or about 80% of its soybean imports, and now domestic farmers will start to plant their new crops fearful of potential barriers.
Soon after former President Barack Obama instituted a tariff on tire imports in 2009, China imposed levies on the U.S. poultry sector, costing the industry thousands of jobs and $1.1 billion in lost revenue.
Earlier this week, Yi stated that “a trade war is a mistaken prescription” in today’s globalized economy.
Trump Nation Disapproves of Tariffs
The tariffs have been the subject of fierce opposition by many GOP lawmakers. On Wednesday, more than 100 Republicans sent a letter to the White House, pleading with Trump to reconsider his position that could lead to “unintended negative consequences.” Senator Rand Paul (R-KY) called the move “simply a tax,” while Speaker of the House Paul Ryan (R-WI) did not favor “broad-based, across-the-board tariffs.”
Other prominent conservative voices, including the Koch brothers, pro-Trump analyst Larry Kudlow, and Stephen Moore, have expressed their disappointment in this element of Trumponomics. Kudlow and Moore told the Fox Business Network that they tried to whisper in the president’s ear, but they could not get into the White House.
Gary Cohn, the former National Economic Council (NEC) director, resigned over his opposition to the president’s steel and aluminum levies.
The Mises Institute issued a blistering response in an editorial titled “Against Trump’s Tariffs”:
“We could go on and on, exploring any number of failed justifications for tariffs from the “infant industries” argument to the need to fight foreign “dumping.” In the end, though, American taxes represent an attack on American consumers, American taxpayers, and American entrepreneurs. The Trump administration’s tariff policy will reduce real incomes and raise the cost of doing business. There is no up side”
Investors are also scared of two prospects: a trade war and the ascent of trade adviser Peter Navarro.
Investment Surplus Versus Account Deficit
For years, conservative and libertarian economists have dismissed the trade deficit – Murray Rothbard famously uttered “I don’t care about the trade deficit.”
President Trump is determined to improve the balance of trade. Despite the scores of protectionist measures employed over the last 14 months, the Trump administration has hardly narrowed the gap. In January, the trade deficit surged 5% to $56.6 billion, and the biggest trade gaps were with Canada and China, $3.6 billion and $36 billion, respectively. The overall trade deficit is about $500 billion.
But what many overlook in this trade conversation is foreign investment.
Foreigners will take the $500 billion from what they make selling goods and services to the U.S. and use those greenbacks to purchase or invest in U.S. assets. These include Treasury securities, corporate stocks, and U.S. businesses. Remember when Trump touted Japanese giant SoftBank’s $50 billion investment in the U.S. over the next several years? That’s just one example.
Simply put: the current account deficit is offset by an investment surplus. In the future, it is best to take the advice of American Enterprise Institute (AEI)’s Mark Perry: the next time a politician negatively refers to the trade deficit, think of it instead as “vital capital-creating, job-generating foreign investment surpluses for a better America!”
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