When It Comes to Tariffs and Trade, Trump Is Not Playing with a Full Deck
Trans-oceanic cargo ship near the mouth of the Columbia River. Photo: Jeffrey St. Clair.
Trump often makes allusions to card playing when discussing his negotiations on various issues, but in the case of trade, it seems he is the one missing cards. He has a much worse hand than he imagines as he attempts to extort our trading partners into make concessions on various issues.
Our trading partners benefit from selling us stuff, or they wouldn’t do it. Trump apparently thinks that gives us enormous leverage in negotiations. What he somehow seems unable to understand is that the United States benefits from buying things from our trading partners. We would pay more money for a wide range of products if we could not import them.
This doesn’t mean that everyone always benefits from our trade. Manufacturing workers were badly hurt as we had trade deals that exposed them to competition with low-wage workers in the developing world, even as we maintained or increased protection for highly educated workers like doctors.
This competition largely eliminated the wage premium that manufacturing workers had long enjoyed. Longer and stronger government-granted patent and copyright monopolies also disadvantaged most workers. But this history has little relevance to Trump’s trade wars.
Trump makes demands that are supposed to be in exchange for the privilege of selling in the U.S. market. Countries don’t want to lose the U.S. market just as a steel company would not want to lose a major auto manufacturer as a customer.
But there is a limit to how much a country is willing to tolerate to preserve an export market, just as there is a limit to how much a steel manufacturer would be willing to concede to a major automaker to keep it as a customer. And if the automaker constantly reneged on deals and made new demands, the steel manufacturer would at some point be happier just to lose the business.
We don’t have to speculate about this story when it comes to trade, we can see it in the data. China’s exports to the United States used to be a much larger share of its economy. In 2010, these exports were equal to nearly 6.0 percent of China’s GDP. (Both exports and GDP are calculated in dollars.) By last year they had fallen to just 2.3 percent of China’s GDP.
This shrinkage did not cause any sort of collapse of China’s economy. In fact, it continued to grow quite rapidly, except for the hit from the pandemic in 2020. Reducing its dependence on the U.S. market by 60 percent over 14 years did not cause China any major hardship.
At this point, while China still benefits from its trade with the United States, its leadership has not been terribly impressed by tariff threats from Donald Trump. For the most part, they have let Trump negotiate with himself, lowering his proposed rates so as not to send consumer prices here soaring and to restore the flow of vital inputs like rare earth minerals.
Few countries can boast an economy that is anywhere near as successful as China’s but its ability to reduce its dependence on the U.S. an export market is still instructive. Countries can and will move away from the United States as a trading partner if Donald Trump insists that we are unreliable and untrustworthy.
The world outside of the United States is plenty large and countries can look to sell their goods elsewhere. They can’t shift production and trade patterns overnight, but they certainly can make adjustments over a span of four or five years. Most of our trading partners are already moving aggressively to shore up deals with other countries. This process will surely accelerate as Trump makes ever more unhinged demands.
The United States did benefit from being a reliable trading partner for the eight decades since the end of World War II, which is reflected in our strong economic growth over this period. This was very much an “America First” trade policy, even if Donald Trump is unable to understand that fact.
This first appeared on Dean Baker’s Beat the Press blog.
The post When It Comes to Tariffs and Trade, Trump Is Not Playing with a Full Deck appeared first on CounterPunch.org.
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