WASHINGTON: While campaigning for president, Donald Trump said that he would fix every one of the lopsided trade agreements that the US had with trading partners worldwide. America winning the trade war with worldwide trading partners like China, Japan, South Korea, Mexico, and Canada quickly becoming a priority.
After being sworn into office and examing each agreement the President came to the conclusion that each one required renegotiating. The problem was that every trading partner was very reluctant.
And why not? For whatever reason, every single trade agreement was in favor of our trading partner and to the detriment of the US. Each trading partner liking it that way.
The auto industry suffering from lopsided trade agreements
As an example, consider the automobile industry. When a car is produced in Europe and sold in the US, a 2 ½% tariff is charged by the US. However, when a car is manufactured in the US and sold in Europe, the EU charges a 10% tariff.
For the agreement with China, a car produced in China is charged a 2 ½% tariff when sold in the US. But a US-produced car is charged a 25% tariff when sold in China. Some cars, like the Corvette, are charged a 50% or more tariff.
China was even able to avoid the 2 ½% tariff by producing most of the car in China, then sending it to Mexico to be finished. When completed the car is sold in the US and charged no tariff because the car came from Mexico.
The result of these lopsided agreements is that Americans annually import hundreds of billions of dollars more than we export. That means hundreds of billions of dollars annually flowing out of the US.
President Trump’s goal was to renegotiate these agreements so that they encouraged free as well as fair trade. Fair meant that if countries charged a tariff, then the tariff should be the same whether importing or exporting.
But all of the trading partners did not want to renegotiate. Trump, being a business person and not a politician, knew that when negotiations are required and the partner is unwilling to negotiate, a sense of urgency must be created. Even though every conservative economist objected to large tariffs, Trump imposed punishing tariffs on our trading partners.
It’s all about the economy and tariffs are the answer.
The purpose of the tariffs, in the short term, was to bring the partners to the negotiating table. In the long term, the goal was to have new trade agreements that were truly fair to both sides. So far it is working, marvelously.
Already a new agreement has been reached between the US, Mexico, and Canada (USMCA). There is a new agreement with South Korea and a new agreement with Japan. India is talking to the US about a new agreement and even the European Union has pledged to work toward a zero-tariff policy.
The last major trading partner is China.
China is extremely reluctant to change the very favorable to China, trade deal they have with the United States. So Trump imposed punishing tariffs. American critics warning Trump that we need China which produces hundreds of billions of dollars of goods that are sent to the US. Warning that Americans purchase many consumer goods at much lower prices because they are made in China. Critics also warned that China will retaliate by imposing tariffs on US goods sold in China thereby harming American manufacturers.
Trump stood firm even with Democrats, nearly the entire media, many conservative economists and even some of his closest advisors who were saying that the tariffs would be a disaster for the US economy.
President Trump winning once again – the tariffs did what they were supposed to do.
Exactly the opposite has occurred. Trump realized that China needed us more than we needed them, putting the US in a strong position. However, complicating a deal with China was their refusal to honor intellectual property rights, the closure of Chinese financial markets to US firms, technology transfer issues and the sharing of innovation.
Even with those issues, a new deal was recently reached because the tariffs placed on Chinese goods crippled the Chinese economy. Their very strong growth rate being halved. When they retaliated by placing tariffs on US agricultural products, the cost of food increased for Chinese citizens.
Since workers are mostly very low paid (that’s why US companies manufacture in China) the higher food cost created burdens for the average Chinese citizen.
China eventually relenting as Trump was set to increase the tariffs even further. Now the first phase of a new trade deal is in the final negotiations. China will be forced to change its behavior including the halting of its currency manipulation. Eventually, Chinese markets will be open to US manufacturers which will expand the US economy.
Although many criticize his tactics and cringe when they read his Tweets, no one can argue with his results. Trump has placed the interests of the country above all else. He has won the trade war as US consumers, manufacturers and taxpayers are all coming out ahead.