There Is A Place For Trump Tariffs

I have written before about how an economic and foreign policy based on trade wars has always failed.

Trump’s promised continuation of what he started last time will only result in Americans and U.S. companies paying more for products. Since trade is not a zero-sum game, then what is the point except to isolate our country from cheaper products, jeopardize our exports, and anger overseas friends. The notion that tariffs result in economic gains has never been proven.

If Trump is counting on companies opening manufacturing plants here and providing jobs, the president-elect is wrong. That doesn’t necessarily mean manufacturing plants won’t open. But the days when any plant will bring thousands of good paying jobs to essentially low-skilled workers are past.

Plants that do open will have many fewer employees than they did in the past. The employees they do have will be paid well because of the high level of skills required and will likely be more familiar with manipulating AI than welding. In manufacturing, welding is now for robots. Similar to agriculture a hundred years ago when farms began to need only a fraction of the farm workers due to the mechanization of harvesting, manufacturing is having the same evolution only we haven’t changed our perceptions yet.

Any company will analyze not only the added cost of tariffs, but shipping, raw materials, and labor before deciding whether to manufacture overseas or here. There isn’t one determining factor that defines what will happen. One thing that will be certain is that the American consumer will pay more.

There was an interesting article in the Wall Street Journal this week from Greg Ip stating that Trump may be looking at defending the U.S. economy and punishing other nations by using tariffs to change behavior instead of using sanctions. The U.S. has currently more than 17,000 sanction targets. By using sanctions so much, we weaken the protections afforded to other nations who use the dollar as the pre-eminent reserve currency.

Is there anything to that argument? Yes, I think there may be. Any tool that is abused (sanctions may just be one) risks losing all effectiveness. Trump is very aware that there has been talk among the BRICS (mainly Brazil, Russia, India, China, and South Africa) to have their own currency. This is still very preliminary, but Trump threatened tariffs this week and not sanctions.

To many foreign policy, security, and economic experts, sanctions used to the extent that the U.S. does can have consequences. It discourages nations from placing so much of their assets into dollar denominated currency. This weakens our ability to borrow as much and on more favorable terms.

That doesn’t mean that tariffs as our only tool will fare much better. But when confronted with something like the Russian oil embargo, perhaps tariffs may have been a more sophisticated tool to use especially in conjunction with our partners.

There needs for extended study to determine how the U.S. goes about applying all economic tools and incentives for maximum benefit. While I am now not so sure tariffs are almost always bad, it stands to reason if the incoming Trump administration resorts to the use of tariffs to solve all political, economic, and foreign policy problems, those tariffs may become as ineffective as sanctions.