Skip to main content

TARIFFS AND TRADE

President Donald Trump came into office with a goal of re-balancing trade. Under his America First platform, Trump aimed to restructure our trade agreements to better integrate American economic interests by addressing areas that promoted offshoring of jobs and growth of our trade deficit. As expected, Trump faced his normal dose of skepticism, resistance, and objection. Despite this, the controversial approach has gained some important ground. In the current environment, Trump is defying conventional wisdom and breaking constraints in addressing trade issues. 

Few economic thinkers would promote the use of tariffs. The implementation of tariffs can spark costly trade wars between nations, which can raise costs on consumers and restrict economic growth. Despite the traditional approach of avoiding trade wars, the Trump Administration appears to effectively use tariffs to bring our trade partners to the negotiating table. The renegotiation of NAFTA into USMCA and the pending deal with China came to fruition because the threat of tariffs largely brought leaders to the negotiating table. Additionally, the practice gained economic recovery for trade and diplomatic imbalances with our European allies. 

Free trade is essential to the economic growth and peace for many nations. Trade expands market sizes for producers, reaching consumers outside national borders. Consumers benefit from accessing a wider portfolio of goods and services that are well beyond the limitations of domestic production. Also, nations that trade with one another will be less likely to seek conflicts with each other, as seen with the reduction of conflicts in Europe with greater free trade. Support for free trade should be strong, as long as the agreements incorporate the needs and protects the rights of all trading partners.

An important requirement for free trade is fairness in markets and good faith engagements amongst nations partied to agreements. Trade agreements must allow all parties to benefit and protect from purposeful manipulation of markets. For quite some time, our trade partners fell short of the good faith requirement by implementing protectionist policies and manipulating market conditions to promote their domestic production at the expense of the growth of our trade deficit. Purposeful currency manipulation made our goods appear more expensive and ownership restrictions harmed producers in combination with blatant intellectual property theft. Due to inaction, our trade deficit continued to grow and our innovators saw cheaply made counterfeit products harm investments in new technology.

President Trump is not the first American president to realize the impact of trade deals or the adverse effects on our economy. Presidents before him understood how practices of our partners harmed our economic condition and job creation. There was plenty of awareness of the issues with the future projection of the status quo. The real issue was developing an effective solution that allowed for continued trade, but removed the behaviors negatively impacting American interests. Conventional wisdom made policymakers cautious of trade wars, which limited the potential for effective countermeasures. 

Conventional wisdom is not always given a voice in the Trump era. Throughout the campaign and early in his administration, President Trump defied those that cautioned against trade wars. Many times he showed a clear lack of concern for such conflicts. Frequently, Trump claimed that trade wars were easy to win. Trusting in the resolve and resiliency of the American economy. 

The media and anti-Trump politicians consistently aim to paint the Trump Administration as chaotic and short sighted. In seeking trade reform, Trump and his team demonstrated a great deal of patience and long term strategy to attain its goals. Although the call for such reform was laid out early, the significant action did not happen until our economy was back on its feet and growing strong. The focus first was implementing pro-growth and job friendly policies. Expanding economic growth and job creation was essential in blunting any countermeasures faced in responses to tariffs implemented. 

The applications of tariffs did not come without a price to Americans. While our economy proved resilient, the trade woes negatively impacted American farms and producers, especially in the Midwest. Subsidies and other measures were needed to help some bridge the gap. The stock market remain positive overall, but speculation of trade issues combined with the government shutdown restrained growth and returns. Business owners once again experienced uncertainty in the marketplace, which negatively impacted the recent job numbers.

Naturally, trade conflicts harm both sides. The side able to withstand the effects the longest can leverage the situation. For instance, the trade conflict with China harmed both nations, but China suffered greater damage due to its need for growth to sustain its large population. The sound decision of coming to the negotiating table to resolve disputes was needed to prevent further issues. One can reasonably believe the same phenomenon appeared to happen with Canada and Mexico. 


President Trump took a different approach in balancing trade than his predecessors. Instead of letting conventional wisdom constrain options, he effectively brought our partners to the negotiating table. To his credit, President Trump made significant progress in fixing our trade issues. Our economy is not heading toward isolationism but moving forward with fair and free trade. Something many establishment backers did not believe was possible.