OPINION: Trump’s trade war with China hurts everyone

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OPINION: Trump’s trade war with China hurts everyone

Caleb Garbuio

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Trump’s imposition of tariffs on China, our largest trade partner, is akin to shooting yourself in the foot. 

Tariffs are taxes on imported goods, serving as a protective barrier against foreign competitors, resulting in higher prices for consumers because price signals rely on scarcity and consumer demand. As production of goods and services reaches a global audience, the price of competing goods will drop due to the rising number of goods being produced. Consumers ultimately benefit from global competition because they have more freedom to choose products and cheaper prices. 

While many take issue with buying foreign products, only 21% of Americans would be willing to pay 10% more for domestic goods, a Reuters/Ipsos poll found. This means despite raising objections to foriegn-manufactured items, people will still choose the cheaper product over the more expensive one. Therefore, consumers bear the brunt of the trade tariffs because they now have to pay higher prices.

Although consumers are affected most, producers also experience negative economic effects. This is due to the symbiotic relationship caused by the global supply chain producers now rely on to produce their goods and services. For example, General Motors may rely on steel from China to manufacture its vehicles. The cheaper cost of steel results in a cheaper cars made which keeps companies from losing profit.

For the past couple years, China has retaliated against Trump’s tariffs by imposing sanctions of their own that hurt domestic industries. For example, farmers and other agricultural manufacturers experienced a $24 billion decrease in export sales as a result of China imposing retaliatory tariffs. This deals a serious blow to America’s leading export since imposing a tariff on the world’s most populous country increases the price of goods making other countries’ goods appear better. In essence, Trump has succeeded in weakening the market position of America’s biggest contributor to the global market, leading to an even larger trade deficit. 

Trump seems incapable of grasping the fact that a trade imbalance is not bad since Americans are purchasing goods at a cheaper rate and increasing foreign investments in the economy, which grows gross domestic product. An analysis of NAFTA by the Council on Foreign Relations concluded the addition of Mexico into the “free trade zone” contributed to mild economic growth. Critics argue that NAFTA resulted in companies outsourcing jobs to Mexico for cheaper labor. 

However, economists Gary Clyde Hufbauer and Cathleen Cimino-Isaacs found an increase in trade produces economic gains. Further research suggests that NAFTA creates 200,000 jobs annually, resulting in a 15-20% increase in wages from lost jobs. According to the Peterson Institute, the two hundred thousand jobs lost to NAFTA are replaced with newer, better-paying ones.

This leads to low-skilled manufacturing jobs moving overseas, where developing economies have a competitive advantage since their workers earn less. This results in cheaper products returning to the U.S. for assembly into more complex products. As the supply of goods becomes cheaper, companies produce more, leading to higher employment and cheaper products.

In the global scale, this results in economies becoming more efficient because they specialize in different things. This gives countries less developed economies a competitive advantage because they can specialize in simple products and compete against larger economies on a global stage. This benefits all parties involved because multiple nations now have reached full production, meaning higher employment and cheaper products for all

Trump’s actions have consequences not just for the U.S., but for the rest of the world. As nations invest in each other, they are, in essence, gambling on the future success of each other.