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The Complexity of Trump’s Trade Wars

August 23, 2018, 11:36 am

I know, I know. tariffs are bad things and, are (in reality) no more than just taxes paid by consumers and producers. That is a truth we shouldn’t forget but, in today’s globalizing economy, there are nuances to things that also shouldn’t be forgotten.

The “never-Trump” movement which encompasses both the left and the (let’s call it moderate) wing of the Republican Party has forgotten much about our trade relationships that have been established over the past 70 years. They seem to find anything this president even considers to be disagreeable and, on trade, that’s an easy target it seems.

Let’s consider however the reality of most of our trade deals. We can look at Europe and include NATO since, in many ways, military-defense spending is no more than trade regulation at its core. We can also look at China and how its economy has grown so mightily over the past 30 years. Regardless, both Europe and China have one thing in common when it comes to trade deals with the United States; our old deals are simply outdated and wrong, hurting Americans while helping Europeans and Chinese.

When China and the United States began to open trade in the 1970s, the Chinese economy barely existed. Its total output as measured by GDP was miniscule when compared to the United States. This “developing economy” status incentivized the United States to enter trade deals that favored the Chinese as we wanted access to their markets at any cost. The old story was “selling a billion pairs of shoes to China is a dream come true.” For most companies in America desiring to play in the global ocean of business, China’s markets were big and ripe with potential but they were undeveloped.

Move the clock forward 40 years and we now have China competing with the United States to be the world’s largest economy! No longer are they a developing economy, but they have become the largest single competitor to U.S. domination of the global economy. This is a huge change in status and, as such, requires a huge change in trade policy. Add in the Chinese government’s proclivity to use their currency to make their products unrealistically cheap to the world and you have a setup for a need to seriously renegotiate our trade relationships.

Europe is no different. Following World War II, European nations’ economies were universally in shambles. Their only hope against the Soviet Union’s massive army sweeping through Europe was the power, both militarily and economically, of the United States. It is surprising how this fact has been lost both in Europe and here in the United States. Like our trade relations with China, our relationships with Europe were largely established during this post-war reconstruction era and then continued with simple inertia.

However, the world has changed. Europe now commands a fully developed and competitive economy with the United States. The trade regulations that for decades favored Europe to help them reconstruct are no longer necessary. European nations now have economies that should lead us to reconsider our military spending in that continent.

Smart trade requires rethinking our political interests and global economic interests. Clearly, this president has taken his American First policy into the world of trade and is working to make global trade favor the United States. This requires hard-ball negotiation, leading Trump to sanction some nations while threatening others. Only time will tell whether his negotiations are successful.

Steve Beaman is the Chairman of The McGraw Council and the author of The Path to Prosperity.