OPINION:
President Trump’s trade war isn’t going well. His tariffs are producing results, but not those most Americans want.
Postelection optimism for stronger growth has dissolved into recession fears, stock prices have slid significantly, and interest rates are up.
Tariffs threaten to boost new automobile prices by $3,000 to $10,000.
After the rollout and retreat of massive reciprocal tariffs to only hostility-provoking levies on automobiles, steel, Mexico, and Canada, and an across-the-board 10% for most other trade, the objective appears to be balanced bilateral trade.
The art of the deal is to embrace the possible
The real problems are China’s massive subsidies for manufactured exports, intellectual property theft and quest for technological supremacy by any means fair or foul.
Mr. Trump’s reciprocal tariffs formula is premised on the notion that if the United States has a trade deficit with another country, then it must be cheating. Every nation should be taxed to compensate the United States for providing a security umbrella. Even countries with which we have trade surpluses are taxed an additional 10%.
Balanced trade with each nation would be akin to a baker purchasing only as much in shoes, meat and drink as his cobbler, butcher and brewer each purchase of his bread. That’s barter, the most primitive form of exchange.
Civilizations invented money to enable more complex, productive arrangements, and nations should strive to balance their overall trade while specializing in what they do best.
Money and trade
The international economy needs a global currency because exchanging national currencies in many bilateral markets would be terribly costly and inefficient.
The dollar is involved in 88% of all international currency transactions. Trade, for example, between Chile and Vietnam usually entails exchanging pesos for dollars and dollars for dong.
As global commerce grows and international investors place more wealth in assets denominated in the global currency, the demand for dollars and Treasurys grows internationally. To enable this, the United States must have a trade deficit financed by selling Treasurys and other dollar-denominated assets abroad.
For the trade deficit to be reduced from $1.1 trillion annually to zero, the United States must forsake the dollar’s status as the reserve currency and increase personal and corporate income taxes by about one-third. That kind of money can’t be raised with import duties.
Can the demagoguery
Mr. Trump’s tariffs take a wrecking ball to the multilateral trading system, centered around the World Trade Organization and regional and bilateral agreements such as the U.S.-Mexico-Canada Free Trade Agreement, which he negotiated.
Mr. Trump crafted an electoral majority by supplementing the Republican base in the South and interior West by appealing to disgruntled working-class voters in states from Pennsylvania to Wisconsin.
He sold the false narrative that the decline of U.S. manufacturing employment resulted from almost every other nation cheating on the system at America’s expense. I’d like him or his West Wing economists to show how Canada is guilty of that. They can’t demonstrate that it’s a significant net source of illegal immigrants or fentanyl.
Tariffs on Canada and Mexico would destroy the integrated supply chains that have developed in energy, autos, electronics and other industries in favor of austerity.
Demagoguery, especially from presidents, should be called out.
Bessent’s China focus
The decline of manufacturing employment across the developed world was accelerated by productivity growth in the 1990s and 2000s and China’s mercantilism.
More North American and European factory jobs would require curbing their predatory behavior and continuing American investment in artificial intelligence, automation and workforce training to rekindle manufacturing productivity growth.
Those play to our strengths in technology, but our businesses need broader markets than U.S. consumers to enable those. Namely, market access in Europe and North America, as well as the rapidly growing markets in Southeast Asia and India.
We similarly need their cooperation in confronting China.
When President Biden imposed 100% tariffs on Chinese electric vehicles, Canada followed suit. The European Union also raised tariffs.
That’s evidence they finally saw the threat from China as we do. Still, Mr. Trump’s multifaceted attack on the Western trade and security alliance makes it more tempting to throw in with China than cooperate with us.
Treasury Secretary Scott Bessent has suggested a Grand Encirclement Strategy: trade deals with allies to isolate and confront China as a group.
Remember mother’s advice: You catch more flies with sugar. Mr. Trump’s reciprocal tariffs and NATO bashing are the most repulsive vinegar.
I’m skeptical that he can quickly get the bilateral trade agreements with the scope of cooperation we need vis-a-vis Beijing by threatening huge tariffs.
It’s time to replace the White House economists who cooked up the reciprocal tariffs, find an off ramp for a terrible blunder, and forge a united front to put the heat on China.
• Peter Morici is an economist, an emeritus business professor at the University of Maryland and a national columnist.
Please read our comment policy before commenting.