Trump’s Wrong: Trade Wars Are Bad And Hard To Win
August 10, 2018
Detroit Free Press
By: Sandy K. Baruah
With good economic times at hand, isn’t now a good time to get tough on trade and employ some old-fashioned tariffs? In a word, no.
When we were building our nation, tariffs served as the government’s key form of revenue. As a new nation, we needed to import, well, just about everything. When we were a rapidly growing nation, and without local supply, tariffs worked out fairly well. Since those early days, however, tariff wars have not worked out well for the United States.
Republicans tried this with the 1930 Smoot-Hawley Tariff. The results were disastrous, accelerating the nation into the Great Depression. It has been Republican orthodoxy ever since that tariffs were bad. Donald Trump, as he has done with many things, has turned this orthodoxy on its head.
For many, the idea of tariffs is appealing. It fosters images of getting tough on foreign companies and supporting red, white and blue companies. Let’s examine some myths.
Myth 1: American families are harmed by imported goods. A study by the Peterson Institute for International Economics shows that, on average, American households have increased purchasing power of $18,000 annually thanks to our access to imported goods. Roughly translated, household incomes in America would be $18,000 less per year if we did not participate in the global economy.
Myth 2: Trade deficits cost America money. Some claim other nations are “ripping us off” because we import more goods than we export. This is like complaining that my family has a trade deficit with the local Kroger. I purchase a lot from Kroger, and it buys nothing from me. This is a trade deficit, but certainly does not mean that I’m getting ripped off (especially when I use coupons).
Myth 3: Imported goods cost U.S. jobs. This is flawed thinking on many fronts. Just one example of an imported good, a Jaguar sedan, employs scores of Americans. From the U.S.-based company operations staff, the shipping and dock workers, to the sales people in communities across the nation. And this one British product contains more Southfield-based Lear Corporation components than most other vehicles in the industry. A study by the Trade Partnership Worldwide concludes 41 million American jobs – more than 1 million in Michigan – depend on trade.
Myth 4: A tariff war will Increase U.S. manufacturing. Even U.S.-built goods, depend on parts from around the world. U.S.-built cars generally have around 20% component parts from other nations. The proposed tariffs on auto parts, along with the already implemented steel and aluminum tariffs could increase the price of a U.S.-built car by nearly $2,000. The cost of an imported car could increase in cost by as much as $9,000. Price hikes like these will certainly dampen auto sales, impacting the employees of manufacturers, suppliers, dealers and more.
Of all the states in the nation, Michigan is one of the most trade dependent. Our technology, manufacturing and agriculture industries are global powerhouses. Our success in international markets is a key element of Michigan’s – and Detroit’s – turnaround.
Sandy K. Baruah is the President and CEO of the Detroit Regional Chamber and served as U.S. Assistant Secretary of Commerce under President George W. Bush.