Trump’s Trade Calamity

Bob Topper

(4/28) The world economy may have dodged a bullet. Trump backed down, calling for a 90-day moratorium on most of his nonsensical tariff tax plan. In 90 days, people will have forgotten, and he may let this sleeping dog lie, as he did in 2016 with his unfulfilled promise of universal health care. He would be wise to do that, but Americans would be foolish to forget, for this fiasco shows us how dangerous it is to have someone in the Whitehouse who makes decisions based on what he wants to be true rather than what is known to be true.

One need not be an expert in international trade to see that Trumps tariff taxing formula is foolish. Equations are logical expressions that model how variables relate to one another like Einstein’s e = mc2. They are a product of rational thought based on observation and their validity is confirmed by fact and evidence.

Here is the Whitehouse rationalization:

"While individually computing the trade deficit effects of tens of thousands of tariff, regulatory, tax and other policies in each country is complex, if not impossible, their combined effects can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero."

And they offer this equation:

Where, Δτ is the tariff imposed on country , x denotes its exports, and m imports. In the Whitehouse paper, two more parameters are shown in the denominator, ε and φ, price elasticity and the tariff pass-through to retail prices, but Trump assumes values of 4 and ¼, which cancel out. So, the Trump tariff tax, is simply the ratio of a country’s net exports to its total imports. If a country’s exports to the US are equal to its imports there should be no tax, but even then, Trump arbitrarily imposes a 10 percent minimum.

The Greek letters imply a scientific underpinning, but the equation is Trumpian nonsense. The Whitehouse, making no attempt at validation, says that modeling trade is "complex, if not impossible," and then asserts that this simple calculation will be the basis of US trade policy. International trade is far more complicated. Any sensible model must consider how other nations will respond and recognize that not all commodities are alike. Each requires individual treatment.

We quickly learned how China and other countries would react. To appreciate why commodities must be treated individually, consider aluminum, a major industry. Aluminum is refined from bauxite. Deposits are rare in the US, and bauxite must be imported. The suppliers of bauxite will simply charge more to cover the tariff, and American manufacturers will pay the higher price; they will have no choice. And that will increase the price of aluminum end products. The US government will benefit from the tax revenue, but the inflated price will be absorbed by consumers.

The coffee we import from Colombia is a similar case. The US grows a small percentage of the coffee it consumes. Yet Trump has imposed a 10 percent tariff, which will drive up the price Americans pay for coffee. Trump wants you to believe that the tariff will be paid by the Colombians, but that cost will be passed through to American consumers. The end result is inflation. Trump recently acknowledged the problem he created by exempting cell phones.

The Whitehouse also tries to justify the tariffs with the notion that they will bring jobs back to the US,

"As a result, [of the trade imbalance] U.S. consumer demand has been siphoned out of the U.S. economy into the global economy, leading to the closure of more than 90,000 American factories since 1997, and a decline in our manufacturing workforce of more than 6.6 million jobs, more than a third from its peak."

Another rationalization. But consider the real reasons American manufactures moved production offshore - the cost of labor and taxes. The high labor cost in the US reflects the comparatively high standard of living enjoyed by American workers. Here wages are set by our free market and Americans are paid fairly. By American standards though, Asian workers were poorly paid. US manufacturers capitalized on the wage difference.

The manufacturers were not at fault. They are obliged to reduce costs. The problem was with Congress. Both Republicans and Democrats failed to protect American workers. Imposing tariffs, especially at this stage, will do nothing to address the fundamental problem, which is the low living standard of Asian workers.

There are logical reasons for imposing a tariff. To protect Harley-Davidson, the Reagan administration imposed a 45 percent tariff on heavy-weight Japanese motorcycles that were flooding the US market in 1983. But the Trump equation is nothing more than a formula for his personal retribution against all countries who, in his mind, "have been ripping us off."

Trump’s formula is childishly simple and foolish. Using it to set our international trade policy is an international embarrassment, and it puts the world’s economies on track for another Great Depression of nearly a century ago. How could America give an incompetent and reckless mad man so much power?

People wanted to believe that he could make America great again, in the way Trump wanted to believe his policy would "liberate" our economy, both are fantasies. The real world does not work that way.

When Biden left office, the economy was strong, and no one was concerned about a trade war. This crisis was created by one man, Donald Trump. And no one should be surprised. Trump has a long history of failed ventures – Trump University, Trump Shuttle, Trump Casinos, Trump Foundation, and Trump Productions, among others. And his moral character is a disgrace.

But Trump is not the issue. The problem is the mindset that put him in office. People no longer value intelligence and clear thinking. Many Americans live in a make-believe world where fantasy equals fact. Our nation did not begin this way.

America was created during The Age of Reason. The founders were brilliant, rational people who envisioned a nation where the people would be governed by the rule of law, laws which they would write in a democratic process, using reasoned debate grounded in fact and evidence. Fifty years ago, things began to go off the rails. Christian fundamentalists entered our politics. Gradually the Republican party evolved to become America's first theocratic party. With one party dedicated to the Constitution, the other dedicated to the bible; one serving the people, the other serving their god, reasoned debate became impossible. Compromise is essential in a democracy. To reach compromise, parties must have the same goals.

The takeaway from this Trump trade fiasco is that we must elect leaders who are intelligent, experienced, dedicated to serving the people, and loyal to our Constitution. Every American should endorse this need for every American would benefit.

And there is this inescapable truth – rational thought created the world we all enjoy. Even those who reject science and believe that Noah lived in a whale happily reap the benefits of modern society. They use their cell phones, take radiation cancer treatments, use antibiotics and GPS positioning, and stream movies, like everyone else. Even they should see the light.

Personally, I want to see the culture wars end. I want to enjoy a good cup of coffee at a fair market price, have an intelligent conversation with friends and not worry about their politics or religion. That was much easier to do before Trump invented MAGA.

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