09-10-2020, 04:28 PM
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PW Enlightenment
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Join Date: Oct 2007
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Trump's Trade War Failed. Can Biden Do Better?
Trump's Trade War Failed. Can Biden Do Better?
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Tariffs simply failed to do the job Trump and advisors such as economist Peter Navarro and trade representative Robert Lighthizer wanted them to do. They may have hurt China’s economy somewhat, but at the cost of also hurting U.S. consumers in the process. And they didn’t accomplish any of their primary stated purposes — cutting the trade deficit, increasing U.S. competitiveness relative to China, or restoring U.S. manufacturing.
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Why?
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Basic intuition says tariffs make imports more expensive, pushing domestic consumers to shift toward domestically produced goods. Exports don’t get taxed under the tariff, so they shouldn’t be affected. According to this logic, tariffs should make the trade deficit go down, and domestic producers should get a boost from all the consumer demand that gets pushed their way.
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So it’s technically possible that Trump’s tariffs worked as designed, but their effect was simply swamped by other, much larger forces buffeting the economy. After many years of tariffs, maybe we would have seen a slight positive effect on the trade balance and manufacturing.
But the likelier possibility is that tariffs hurt exactly the U.S. companies they were designed to help. The reason is that trade isn’t the simple two-way exchange Lighthizer and others seem to imagine, with each country making products domestically and then trying to sell them; instead, it involves many countries and a vast web of supply chains.
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With the U.S. presidential campaign heading into the home stretch, President Donald Trump will surely try to tout his record on economic issues. But the numbers don’t speak well of his policies. Unfortunately, the approach of his rival, Joe Biden, threatens to make some of the same mistakes.
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Unfortunately, Biden’s “Build Back Better” program includes provisions to force government contractors to buy American-made products. This has much the same effect as tariffs — protecting U.S. products from foreign competition, but making their inputs more expensive at the same time. It’s likely to raise costs and decrease competitiveness.
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A much better approach is to focus on promoting exports rather than protecting the domestic market. Helping U.S. companies compete in foreign markets will address the trade deficit without damaging their supply chains. It will also potentially increase their productivity, by nudging them to succeed in more competitive international markets rather than sheltering them in an noncompetitive, cosseted domestic market. There are many policies a Biden administration could use to promote U.S. exports; none involve tariffs.
Tariffs, and other protectionist policies, aren’t suited to a world of complex supply chains. The idea that U.S. companies are best served by walling them off from the world needs to be relegated to the dustbin of history.
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So what should our trade policies be?
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