Donald Trump thinks China is pushing the US around, economically speaking. Beijing manipulates its currency and unfairly subsidizes domestic production to the detriment of American workers, in his view. So earlier this week he proposed doing something about it: Mr. Trump, in an interview with The New York Times editorial board, said that if elected he’ll favor slapping a 45 percent tariff on Chinese exports to the US.
“I would tax China on products coming in,” Trump told the Times. “I would do a tariff, yes – and they do it to us.”
This isn’t an entirely new idea for The Donald. When he considered entering the presidential race in 2011, he talked often about the need to threaten China with a tariff, which would make its goods more expensive and thus less competitive in the huge US market.
But then he was proposing a mere 25 percent levy. Now he’s gone huge, saying the number needs to be almost twice that big to get China’s attention. Is that really a good idea?
Trump appears to believe that the mere threat of a tariff will convince Beijing to be more accommodating to US economic concerns. But as any good deal artist knows, a threat is only effective if it is credible to the threatened. Credibility depends on the will to follow through. But what if China’s leaders decide to play it tough, and dare Trump to implement his tariff revenge? Then everything made in China – which means pretty much everything in many big box stores, including electronics – suddenly goes way up in price.
That might be a great way to make lots of voters unhappy very fast.
“So the average Joe gets to pay way, way more at the store and gets to worry about losing his job after China inevitably retaliates with tariffs of its own, shrinking foreign demand for U.S. goods? That sounds like a plan,” notes right-leaning Allahpundit at Hot Air.
Furthermore, in the long run US retailers would be unlikely to turn to domestic producers to replace their now high-cost Chinese goods. They’d turn to other low-wage developing nations instead, like Vietnam.
The result would be what economists call a “deadweight loss," according to Business Insider’s Colin Campbell.
“The basic economic argument is that tariffs have winners and losers, but the total amount lost would be greater than the amount gained in revenue and in protected industries,” writes Campbell.
Whether President Trump would actually implement such a plan remains an open question. (The World Trade Organization may have something to say about it.) That’s not just due to the fact that problems look more complicated if you’re actually responsible for running the country. It’s also because the next US chief executive might be as interested in helping the Chinese economy as in controlling it.
One big cause of this week’s historic plunge in US stocks appears to be slowing growth in China. Beijing is trying to make its economy more focused on domestic markets. So far, that transition has proved a bit bumpier than anticipated.