For years, special interests have called on the U.S. government to “level the playing field” in the form of duties, levies, and other antiquated measures. Democrats and Republicans alike have aired their grievances over the trade deficit, grumbling about exporters hurting American workers by flooding the market with cheap goods. These complaints are deeply misguided.
Over the last decade, China has been accused of tilting international trade in its favor. Is this true? No, it is demonstrably false, as Beijing’s subsidized exports greatly benefit American consumers far more than the Chinese population.
You can’t tell that to the U.S. government, though.
In October, the Department of Commerce announced that China dumped aluminum foil on the U.S. market, selling the goods at “unfairly low prices.” Ahead of President Donald Trump’s visit to Beijing this month, the Commerce Department slapped duties of up to 162% on the world’s second-largest economy, a move that will further strain U.S.-China relations.
Trade policy under Trump hasn’t been dramatically different from his predecessors? Who can forget about President Barack Obama’s 35% tax on Chinese tires or President George W. Bush’s 20% tax on imported steel? And that’s a bad thing.
U.S. Imposes Anti-Dumping Duties
This should be an interesting conversation between President Trump and President Xi Jinping.
Before Trump’s stop in Beijing as part of his 12-day Asian tour, the U.S. government imposed duties ranging between 96.81% and 162.24% on Chinese aluminum foil. The preliminary report determined that China dumped nearly $400 million worth of aluminum foil imports on the U.S. market in 2016 at very low prices.
In August, the U.S. instituted preliminary duties of up to 80.97% on Chinese aluminum foil. The Commerce Department averred that state subsidies placed American products at a disadvantage.
China is not pleased by the move, describing it as “mistaken methods.” The Chinese Ministry of Commerce confirmed that it would “take necessary actions” to protect its domestic industries by filing a dispute under World Trade Organization (WTO) protocols.
Wang Hejun, an official with the ministry, said the U.S. is not only harming Chinese companies, but it is violating multilateral trade rules. He said in a statement:
“We urge the United States to earnestly fulfill its international obligations, and take real action to correct its mistaken methods.”
It looks like the U.S. will not relent. As part of the Trump administration’s mandate to shrink the trade deficit and boost exports, the Commerce Department has launched 77 anti-dumping and countervailing duty probes, up 61% from 2016, since January 20.
That said, Hejun should have taken it one step further: the U.S. is hurting American consumers.
American Consumers Will Pay Duties
Whenever a protectionist takes a modern-day approach to mercantilism by slapping a foreign industry with duties and taxes, the media usually report that the adversary will be the victim of these levies. Incorrect. It is typically the population under the protectionist ruler that suffers.
Let’s take China’s aluminum foil, which is primarily used for culinary endeavors and industrial applications like heating and insulation, as an example.
The Chinese government likely subsidized the manufacturing of aluminum foil, causing it to be a lot cheaper in the U.S. marketplace. Unfortunately, now that the U.S. has placed an exorbitant duty on aluminum foil, it will no longer be affordable, putting a tax on American customers.
Moreover, Chinese businesses will not be the ones to pay the duties. Akin to higher businesses taxes that are passed onto the customer, makers of aluminum foil will just transfer the additional costs to American consumers.
In May, Liberty Nation reported that the Trump administration would apply a 20% tariff on Canadian softwood lumber imports. The media continually said that Canadian lumber makers would suffer, but the president added a 20% tariff on the American people. Housing prices would jump, homebuilding would slow down, and thousands of construction workers would lose their jobs.
Duties, tariffs, and other taxes are paid by importing shoppers, not exporting firms.
China Subsidies Help American Shoppers
Let’s be honest: Beijing subsidizes its exports, whether it’s through tax policy or currency manipulation. On the surface, you could have cause for concern. Once you dig a bit deeper, however, you realize that impoverished and middle-class Americans are much better off for this.
The goal in trade is to get more for your money. If you achieve this aim, then you’re better off.
This is precisely what is occurring in the U.S. today. Due to market interventions by China, millions of Americans are buying more with their greenback, raising their real incomes. The only people who are affected by this policy are the Chinese, who are required to endure the taxation to subsidize industry and, as economist Don Boudreaux recently noted, “exert more sweat and to sacrifice more resources than necessary to acquire imports.”
When Trump was commemorating Made in America week this past summer, Senator Rand Paul (R-KY) made an excellent point:
“You know, I think all of us have this goal to buy American, but we have to think this thing through.
It used to be a shirt, just a regular button-up shirt, might be $20, $25, and still might be in places. And at Wal-Mart, it’s $7. And so that savings, though, allows working-class people to have savings to get a television set, to go on vacation, to buy gas for their truck. So trade is really a good thing.”
China is providing so many in the U.S. with a form of economic relief.
Stop Caring About Trade Deficits
In the first nine months of 2017, the U.S.-China trade deficit sits at $405.2 billion, compared to $370.7 billion during the same time a year ago. The trade gap has been coming down since April – it widened just under $43 billion in September.
But why do we care so much about trade deficits?
Economist Murray Rothbard suggested that “deficit” has a negative connotation (budget deficit). When someone is watching CNN, and they are being told that the U.S. had a $50 billion trade deficit with Vietnam, they will be irked by this development. A $405 billion trade deficit is far different from a $405 billion budget deficit.
Another idea is that the media and politicians present the argument as China trades with U.S. – and vice versa. Outside of cronyist trade agreements, it is people and business that trade with each other, not governments. It doesn’t matter if it has a “Made in Mexico” or “Made in Canada” tag: you’re buying from a Mexican or Canadian company.
If the U.S. is buying $400 billion more in goods from China than China is buying from the U.S., then somebody has to hold that 400 billion worth of dollars. This is being kept by foreign investors and corporations, which lifts the greenback and gives Americans more purchasing power on the international market.
In the end, we shouldn’t worry too much about the trade deficit. Think of it this way: you own a hardware store, and you frequent the grocery vendor across the street four times a month. Meanwhile, the grocery store owner only shops at your hardware store four times a year. There is a trade deficit: you’re spending more at the supermarket than the supermarket is spending at your hardware store.
Is this a bad thing? No.
Democrats and Republicans need to get over this mercantilist obsession over an imbalance of trade. Not only are Americans benefiting from subsidized cheap products, it is also a free and voluntary exchange between buyer and producer. Whenever a donkey or an elephant shrieks for leveling the playing field, you know that they want the playing field tilted in their favor and no one else’s.
Do you think a trade deficit is a bad thing? Let us know in the comments section!