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  • Writer's pictureRohan Bhatia

Trump's Tariffs

Whilst campaigning in 2015 and 2016, Donald Trump's distaste toward China and a general sympathy with America's blue-collar working class earned him a lot of votes. It's one of the issues he campaigned hard on, and is one of the issues that likely took him all the way to the White House.

Yet most Americans were not prepared for the economic protectionism that came with Trump's presidency. Strangely, even whilst representing a party that has traditionally aligned itself with free-market ideals - the tariffs and quotas of Trump's economic policy surprised many within the GOP itself. "We're holding a gun to our own heads," said Senator John Cornyn, a Republican from Texas. Many within the party recognised the destruction that heavy protectionism would bring - yet Trump quickly introduced tariffs and quotas on Chinese imports within the first year of his presidency.

A tariff is simply a tax that a government enforces on a good or service being imported into a country. The rationale behind such policy is to force imports to become more expensive than domestic substitutes, therefore helping to support local businesses. Yet the reality is that Tariffs mostly just end up hurting the domestic consumers the most - since the taxes just get passed onto higher purchasing prices as foreign firms look to maintain their profit margins.

Trump's tariffs included a huge $50 billion tariff slapped onto Steel imports, as well tariffs on solar panels, washing machines. By 2018, China's Ministry of Commerce had all but confirmed their participation in a trade-war, retaliating with tariffs on 128 American imports; including aluminium, airplanes, cars, pork, and soybeans - all at a 25% tariff.

This then instigated the tit-for-tat back and forth tariffs and quotas being handed out by both the US and China. What has followed has been an ugly trade war that has largely had a net negative effect on both countries. Further tariffs and quotas were traded throughout 2018 and 2019 - before a ‘phase one’ trade deal was announced in early 2020 to calm tensions between the two nations and to ease planned tariffs. The focus of the ‘phase one’ deal was on intellectual property, technology, agricultural products, and financial services.

In particular, the emphasis on American agricultural exports was a key concern. As most economists predicted, the trade war would bring damning effects onto a number of US sectors reliant on the Chinese market for its business, such as the farming and agricultural sector. As part of their retaliation, the Chinese enforced a number of tariffs, bans, and quotas on American farming exports - effectively pricing them out of the Chinese market. In 2019, the Census of Agriculture found farm bankruptcies up 12% from pre-Trump levels, and the nation has lost more than 100,000 farms since 2012.

The trade war has also diminished local consumers’ purchasing power, with many imports rising in price. Mary Amiti, an economist at the Federal Reserve Bank said that “U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers.” Manufacturing, the very sector that Trump promised to revive through his protectionism, is slumping - which can largely be attributed to uncertainty stemming from trade conflict and suffering investment confidence. Amiti estimates that the tariffs have been costing American consumers $3.2 billion per month in additional prices on average.

Another major disadvantage of huge tariffs and trade restrictions is the stifling of local innovation and labour mobility. A healthy economy is characterised by a workforce that is constantly evolving and adjusting, according to the strengths of the nation. For example, in Australia, where mining and minerals make up nearly half of all exports, the workforce has been shifting in that direction over the past 15 years. School-leavers are no longer going into uncompetitive industries like manufacturing, and instead focusing on a career in mining. And of course, the Australian government’s commitment to free trade has strengthened this structural shift in the Australian economy. Indeed, this flexibility in the labour force has facilitated the massive growth in resource exports, which heavily contributed to Australia’s 30 years of uninterrupted economic growth. Should the US embrace free trade and relinquish its attempts to revive dying industries, it will open the opportunities for specialised tech and services exports to boom and take advantage of emerging markets. Instead, the tariffs introduced throughout Trump’s presidency have been nothing but stifling to these sectors.

The insurgent President Biden has a difficult task ahead of him in many respects. To control the ravaging pandemic, settle the civil conflict, and unify the country. Things that will likely take up a large part of his presidency. Something that should not even be a second thought, however, is releasing the damaging economic protectionism which President Trump has brought about. Embrace free trade, welcome international competition, and galvanise the robust American economy. It’s really not that hard.

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