Trade disrupted

  • 2 September 2019
  • NormanL

A new round of tariffs on goods imported from China went into effect over the holiday weekend, with more tariffs postponed until closer to the Christmas holiday:

The U.S. tariffs of 15% on tools, apparel items, some footwear and many electronics will be charged on imports valued at $111 billion last year, according to an analysis by The Wall Street Journal. Additional tariffs of 15% on $156 billion of smartphones, laptops, toys, videogames and other products have been postponed until Dec. 15, after the period when goods are typically imported for the holiday season.

“Absolutely worth it, we don’t want to be servants to the Chinese!” President Trump said Sunday in a tweet, referring to the process of tariffs forcing American importers to look for other suppliers. The tariffs are “about American freedom,” he added in another tweet. “There is no reason to buy everything from China!”

We've long questioned the view that tariffs are the right and proper - nevermind effective -- method for delaing with unfair trade practices. Putting aside the level of economic misunderstanding on display in the tariff push, there's a legitmate question to be answered: Have U.S. companies shifted their production back home? No, they have not. As economist Bruce Yandle writes in The Hill, tariffs change trade networks, substituting one set of actors for another:

...some Vietnamese firms are already taking the place of Chinese businesses, that Brazilian farmers are supplying the soybeans once shipped by Americans, and that former Chinese buyers of American goods have found Chinese or other international suppliers. As Thomas Wolfe put it, “You can’t go home again.” The pre-war home no longer exists exactly as it was.

At the same time that these competitive adjustments are occurring, the Trump administration is expanding its China tariff coverage to cover more consumer goods, including electronics, and also making noise about potential tariffs on French wine and European automobiles. These new tariffs could just as easily distort long-established trade relationships that, once lost, cannot be reshaped overnight.

Mr. Trump’s continued preference for using tariffs in the hope of getting his way with other countries is imposing costs in the short run. As for the long-run, we’ll eventually learn whether distorting trade relationships was worth it.

The key fact to always remember about trade: it is always between people, not countries.