When a nation or trading bloc announces a new set of retaliatory tariffs, the words of quintessential and legendary private detective Philip Marlowe typically spring to mind: “There is no trap so deadly as the trap you set for yourself.” Leaders like Canadian Prime Minister Justin Trudeau may think they are a sending a message by pumping out their chests and slapping their own series of import Levi jeans, but these countermeasures are only harming the very people they claim they want to protect and defend.
In recent weeks, President Donald Trump has imposed billions of dollars worth of tariffs on imports emanating from Canada, Mexico, the European Union, and China. These announcements have rocked markets, made international headlines, and spurred outrage among these leaders – which is ironic considering how these jurisdictions have been protectionist for years.
Ottawa announced it was retaliating with duties on ketchup and toilet paper. Brussels confirmed it was targeting America’s struggling agriculture sector. Mexico City officials revealed a 20% tariff on U.S. pork. Beijing fired back with taxes on electric cars, whiskey, and soybeans. Should Washington persist on implementing even more mercantilist acts, it is likely these governments will further react.
The string of responses is great for political optics as they elicit confidence among the voting population. It tells voters that their elected officials are doing something, not just sitting around, twiddling their thumbs, and hoping the whole thing blows over. On the surface, it is intriguing political theater. However, once you dig beneath the surface, you find a diverse panoply of domestic casualties, from consumers to businesses to entire industries.
A Tax on the People
Mexico is a huge market for U.S. pork products, primarily legs and shoulders, which are used for many popular local dishes. In 2017, the country imported roughly 840,000 tonnes of pork from north of the border, worth more than $1 billion. As a result of the country’s own tariffs, Mexican shoppers are projected to witness a 16% spike in pork prices, which is leaving many industry leaders concerned about a reduction in consumption.
Britain is having a love affair with U.S. bourbon whiskey. In 2016, sales of American bourbon and whiskey each topped $1 billion. Thanks to the E.U. targeting these products, businesses that specialize in the booming spirits market fear that sales may come crashing down in the coming months as prices are anticipated to soar. The average bottle of Kentucky hooch and Tennessee whiskey could surge as much as 25% when the tariffs are finalized.
China is the world’s biggest consumer of soybeans. Although U.S. soybean farmers are going to be battered and beaten from tariffs, the Chinese population can also expect to see higher prices. The federal government unveiled a five-year plan to boost domestic soybean production, which involves extending subsidies to farmers nationwide, leaving taxpayers on the hook.
Back in the U.S., consumers are already experiencing higher prices for a whole host of goods. Washing machines are getting more expensive, domestic cold rolled coil (CRC) steel costs 50% more than Chinese or European options, and lumber prices have been steadily climbing since January 2018.
Simply put: American tariffs harm Americans, Canadian tariffs hurt Canadians, EU levies affect Europeans, and Chinese taxes impact the Chinese. Who wins a global trade war? Nobody.
More Free Trade for All
Proponents of the protectionist policies defend the president, arguing that he is playing a game of 4D chess. In other words, the tariffs are only being used as leverage and a negotiating tactic – nothing more. If that is true, then orange farmers, steel-consuming companies, and energy producers will still feel the pain, whether it is in the short- or long-term.
It has been well documented just how U.S. businesses and consumers are negatively affected by the president’s tariffs, but it’s rarely discussed how the retaliating states impact their own people.
The Canadian punditry class may applaud Prime Minister Trudeau for his efforts. The Chinese steelmakers may cheer on President Xi Jinping. The European elite may toast Jean-Claude Juncker with a glass of champagne. But these politicians and special interests don’t seem to worry about the consequences to low-income earners, middle-class households, and small businesses. As long as they showcase their bravado and garner brownie points from the benefactors of protectionism, then they can still somehow justify their endeavors.
Legendary economist Murray Rothbard wrote:
“The tariff principle is an attack on the market, and its logical goal is the self-sufficiency of industrial producers; it is a goal that, if realized, would spell poverty for all. It would be a regression from civilization to barbarism.”
The real retaliation to tariffs is the destruction of trade barriers, lower tariffs, and even more free trade.
Are you worried about the global trade war? Let us know in the comments section!