25 billion dollars worth of tariffs went into effect on China today, and many people are worried about the effect it will have on our booming economy. China is retaliating in kind, focusing their tariffs mostly on farm goods in order to put pressure on the President before the mid-term elections. The farm belt was where he has the most support, and China’s tactic is to hit him back hard with their political calculation, with the hope that he will fold and end this burgeoning trade war.
Trump does not fold. If anything he will double down on his original bet. His calculation is that eventually China will come to the negotiating table and a deal, eliminating tariffs and establishing a rule of law there that precludes intellectual property theft and open markets will eventually be agreed upon. It is a gamble, but our President believes that it is a war that we can win. It is a war that has never been fought before, a war to increase trade, not restrict it!
Mexico, Canada, and the EU are also in Trump’s sights. He see’s the restrictions put on trade coming in from the USA with all these nations as being unfair trading practices that need to stop. He has repeatedly stated that “we are no longer going to be the world’s piggy-bank”, and he is serious about this contention. No longer will we give free access to our markets while there is no reciprocity.
There is now a lot of economic sabre-rattling going on. China, Canada, Mexico and the EU are all making a lot of noise about retaliation. Everything from playing cards to Harley-Davidson motorcycles are being targeted with restrictive tariffs, and so far not one of these countries is willing to discuss lowering or eliminating their traditional trade barriers. They all seem to be very happy with the previous trade status-quo with America, and consider it “unfair” for us to complain about it, let alone set up our own trade barriers to their goods.
Trump is betting on the fact that all of these countries need us more than we need them. His bet revolves around the assumption that we are the largest market for goods in the world, and these countries will suffer more from the present situation than we will. The thought is that they will eventually come to us for a deal, and he very well might be right. The big question is will this take place next month, 2 months from now, a year or two down the road, or maybe never? This is truly a high stakes game of chicken!
In the meantime, there is political and economic danger from this decision. Will be mid-term elections be adversely effected? Will there be a backlash with American consumers when prices go up because of these tariffs? Will this situation result in a slowing of the economy and a premature economic correction? Will certain sectors of the economy be crippled by the effects of tariffs? There are a lot of unanswered questions, and only time will tell if Trump’s decision to “wake up” our trading partners with tariffs is the right decision, or simply a superhighway to recession.