376 - How Irrationally Initiated Tariffs Distort and Destroy Global Trade
From Lesotho to Japan
Mainstream economists without exception decry Trump's tariffs as dumb, dangerous for the global economy, and highly unlikely to result in the revival of U.S. manufacturing or more than insignificant amounts of onshoring. Each of his claims for the beneficial impact of high levels of tariffs (a major tax) on imports are bogus. His current (early August) tariff imposts on copper, aluminum, automobiles from Canada, Europe, Japan, and South Korea will lead to higher charges for American consumers, a ratcheting up of inflation, worsening employment numbers, and a potential global and American recession.
This is what the experts opine, especially two from the Council on Foreign Relations (but there are many more from across much of the political spectrum):
“Trump’s new tariff rate lacks rhyme or reason (other than rewarding big countries that made an effort to give him a win)...This isn’t just protectionism, it is bad protectionism—and will have all sorts of unintended consequences. But its actual impact for now depends on the scale of the exclusions,” says Brad Setser.
“The United States has destroyed the global trade system it created and left nothing in its place but a set of ad hoc arrangements,” says Edward Alden. “For trade, the result will be long-term instability that will be bad for business, bad for consumers and bad for global growth.”
The Economist's considered view is stark: 'Everything about this is harmful. And, whatever...Trump says, nothing about it is fair.'
Trump likes tariffs because they show how one person, one demented leader, can distort the world trading system. Tariffs are something he thinks he can orchestrate to display his considerable personal power.
The specialized U.S. Court of International Trade in Washington, DC, has ruled that his actions are illegal -- that presidents have no unilateral authority to set tariffs on their own. That prerogative is Congress', but Trump has so far ignored the Trade Court's ruling since it is being appealed.
The latest official figures from the Bureau of Labor Statistics (founded in 1884 and never challenged before) show that hiring by employers has slowed, that the unemployment rate has ticked up slightly, that only 37,000 new jobs were created in July in manufacturing in the U.S., and that inflation has increased a little to 2.7 percent. Additionally, 11,000 manufacturing jobs were lost in June and 6,000 in May. Good work Trump!
Lots of businesses are raising or talking of raising prices -- all, they say, because tariffs are increasing their costs. Mercedes, Ford, and General Mills all complain ofn the harm tariffs are doing. Consumers seem aware of the impact of Trump's tariff policies and are holding back. The press reports examples of American businesses ceasing their ordering from China and Vietnam, because of new tariffs. The damage already done to Canadian suppliers is beginning to hurt Detroit as well as much of Ontario. "Dumb" is too weak a word to categorize Trump's cascading failure.
His actions are predicated on a major misunderstanding and many falsifications. He is charging Brazil, supplier of autos, coffee, sugar, and other crops to the U.S. a punishing 50 percent rate because he thinks we sell less to Brazil than it sells to us. But that is patently false since we have been gaining a surplus of $7 billion from our trade with Brazil. Why interrupt something that benefits the U.S?
The answer is that Trump dislikes Brazil's President Luiz Inacio Lula da Silva, who refuses to bend a knee to Trump. The latter accuses the Silva government of going after former Brazilian President Jair Bolsonaro, a would be autocrat who tried to stimulate a mob to upset Lula's election in 2023. Trump’s misinformation about Brazil derives from false statements uttered in Texas by Bolsonaro's son, who has run away from possible prosecution in Brazil.
And that is the story of most of the imposed tariffs: Personal pique by Trump is key. So are profound distortions of how international trade works and benefits the U.S. as well as exporting countries.
Biases have determined the height of Trump's tariff barriers. It makes no rational sense to charge Switzerland 39 percent, India 25 percent, Cambodia 19 percent, and Vietnam 20 percent, and to impose a 30 percent rate on our largest and closest and most reliable trading partner -- Canada -- because Canada has promised to recognize the Palestinian State. Trade needs to be orderly, predictable, and with as few barriers as possible -- all contributors to the prosperity of the globe since World War II.
There are personal tragedies, too, that epitomize the disastrous impact of a misguided Trump tariff on one among tens of small countries. In tiny Lesotho (2 million people in a mountainous enclave completely surrounded by South Africa) the U. S. Growth and Opportunity Act of 2004 enabled Lesotho to establish a textile manufacturing and exporting industry of quality and size. A poor country became less poor and women won jobs that would otherwise never have been available to wrench entire families out of poverty. But Trump's tariffs, originally 50 percent, now reduced to 15 percent, has chilled the garment industry, throwing thousands of women out of work and -- in some documented cases -- into prostitution.
According to the New York Times, "One recent evening, Mpho, 36, [walked along] a downtown Maseru street with no lights. After losing her job ironing and folding T-shirts at a textile plant in January, she turned to prostitution at the suggestion of a friend. The earnings are inconsistent — she can make just over $20 for a full night with a client — but have been enough to pay her rent and buy groceries for her three children. Mpho ...said she’d return to a factory job in a heartbeat."
There are similar stories from many countries in Africa and Asia. Arbitrarily hoisting tariffs has done little except to show that Trump (court cases pending) can throw his weight around, and make himself feel big and important. Nothing else! And all he has done is reduce the esteem of America and reduce its greatness. In a more perfect world, Trump's policies would be struck down definitively by the courts and Congress would impeach him.
Instead, he shotguns tariffs across the planet, fires a civil servant who has been presiding sensibly over the Bureau of Labor Statistics, threatens nuclear war by sending armed submarines toward Russia, and watches blindly while Israel starves Gaza and Putin bombs Ukraine.
Rather than onshoring production, I believe the imposition of tariffs will have the opposite effect and lead to an increase of offshoring as manufacturers see the cost of imported components and raw materials continually rising. Why would they keep their factories in America when they can avoid those input increases, and have lower labor costs elsewhere?
Further, some such as myself have this year moved our modest domain and web hosting requirements from America to cleaner and greener European facilities, and are no longer purchasing any items nor using services from any of the companies owned by those illionaires who were foolish enough to identify themselves by joining Trump on stage at his inauguration. While each of our individual boycotts may only subtract a few thousand dollars from the U.S. economy, there are billions of us butterflies out here.
Under the category of conspiratorial flights of fancy, is it not possible that Trump and the people who pull his strings are well-aware of the dislocation which will result from these economic policies and the potential for civil unrest which in turn might afford them the opportunity to take total control through force? Sounds crazy to me too but it is all so illogical in a normal context.