Dem
47
GOP
53
Yesterday, we had an item on the trade wars. Naturally, the countries hit with tariffs will respond in kind. This is how trade wars start. An editorial in the Rupert Murdoch-owned Wall Street Journal called it the "dumbest trade war in history." Reed Smoot and Willis Hawley are probably feeling relieved now, wherever they may be. They could well be off the hook for the title of "dumbest protectionist maneuver in American history."
Trump was not happy with the Journal, which is often considered the voice of Big Business. So he posted this response on his boutique social media app:
The "Tariff Lobby," headed by the Globalist, and always wrong, Wall Street Journal, is working hard to justify Countries like Canada, Mexico, China, and too many others to name, continue the decades long RIPOFF OF AMERICA, both with regard to TRADE, CRIME, AND POISONOUS DRUGS that are allowed to so freely flow into AMERICA. THOSE DAYS ARE OVER! The USA has major deficits with Canada, Mexico, and China (and almost all countries!), owes 36 Trillion Dollars, and we're not going to be the "Stupid Country" any longer. MAKE YOUR PRODUCT IN THE USA AND THERE ARE NO TARIFFS! Why should the United States lose TRILLIONS OF DOLLARS IN SUBSIDIZING OTHER COUNTRIES, and why should these other countries pay a small fraction of the cost of what USA citizens pay for Drugs and Pharmaceuticals, as an example? THIS WILL BE THE GOLDEN AGE OF AMERICA! WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID. WE ARE A COUNTRY THAT IS NOW BEING RUN WITH COMMON SENSE—AND THE RESULTS WILL BE SPECTACULAR!!!
There are a few noteworthy things here. First, note the short reference to "pain." This means Trump knows that there will be enough inflation ahead that people, including his supporters, will notice it. And as soon as reciprocal tariffs kick in, Trump may up his game and increase his tariffs. That means more pain. Rinse and repeat.
Second, many companies make their products abroad because if they made them domestically, they would be so expensive that their market might shrink to the point that the product was no longer economically viable and would simply disappear.
Third, picking a fight with the Journal is probably not a good idea. The business leaders who read it have a fair amount of power in various ways, and are not shy about using it. Walmart buys a lot of stuff in China and other countries. It will probably have to raise some prices. Imagine it putting up signs in all of its stores reading: "We are terribly sorry for the recent price increases across the store, but we were forced to do that by President Trump's tariffs. If you would like to help us reduce our prices, please contact the President at comments@whitehouse.gov with your thoughts."
Fourth, are Trump's supporters so naive that they think tariffs will affect fentanyl? Do they think U.S. companies import fentanyl from China and it will now cost 10% more?
Fifth, since the tariffs apply only to three countries (so far), some companies may decide to buy products from manufacturers in other low-wage countries in Asia, when that is feasible. A lot of clothing, for example, can be sourced almost anywhere. A U.S. retailer that sells, say, shirts made in China, could probably find a shirt manufacturer in Vietnam or Thailand, give it a big order so it can ramp up production, and move its purchases there fairly quickly. Complicated products, like electronics, probably won't be moved for a tariff of only 10%, but for 30% or 50%, it might be worthwhile.
Sixth, some products really can't be made in the U.S. because the raw materials aren't available. Depending on what the raw materials are, shipping the raw materials to the U.S. and processing them may be difficult for cost or legal reasons (e.g., the processing of them would violate U.S. environmental laws).
The first round of tariffs did not hit the European Union. The second round might. But the E.U. is expecting this and is ready for it. Tariffs on any E.U. products will instantly generate tariffs on U.S. products. The last time this happened, the E.U. tariffs pinpointed specific industries that hurt specific politicians. For example, then-Senate Majority Leader Mitch McConnell (R-KY) surely heard from his constituents about the E.U. tariff on bourbon. This time there might be some of that again. The current majority leader is John Thune of South Dakota and his state exports soybeans, corn, grain, beef, and other agricultural products that would likely be hit hard.
Another issue you rarely see addressed in the context of tariffs is exchange rates. If China reduced the value of the renminbi by 10%, that would automatically make its products 10% cheaper to the importer, so even with the tariff, the store price wouldn't have to change. Actually, it is slightly more complicated than this, because the tariff is based on what the importer paid, not the store price. If Walmart sells some Chinese-made product for $10, it probably paid the manufacturer $5, so the 10% tariff is $0.50, not $1.00. To counteract that, China would have to devalue its currency only 5%, not 10%. As a bonus, if China devalued its currency, that would make American products more expensive in China, so even without a tariff, Chinese companies and consumers would buy less of them. That could result in some unemployment in the U.S., which Trump doesn't want. (V)