WASHINGTON – Even the United States’ long-standing allies can no longerrely on being exempt from higher US import tariffs on various products.DW’s Daniel Winter fails to understand the logic behind Donald Trump’spolicy. Donald Trump’s recent protectionist threats to hammer America’smost important allies with tariffs have baffled economists. The UnitedStates has a massive $566-billion (€461-billion) trade deficit, a red flagto Trump, who is worried by the amount of cash flowing out of the countryto import foreign goods.
He believes his country’s deficit is a sign that foreign partners arebleeding the United States dry, robbing it of jobs for ordinary workers andhampering its economic potential. The truth is very different. Trump isboth wrong to blame other countries and wrong on the economic effects ofAmerica’s huge trade deficit. Instead, the United States should look toitself for the explanation.
Let’s start with the simple economics. If a country wants to buy more thanit produces, it has to import to satisfy demand. Bangladesh, for example,has a comparative advantage in making cheaper clothes of a reasonablequality than the United States can. The same goes for South Korea’stelevision manufacturing and Chinese mobile phones. Luxury cars fromGermany are more expensive but are considered higher quality than Americanbrands. As a result, America buys in all these products instead of makingthem domestically.
*Complementary industries missing*
Does the US president want to increase inflation just so America can makeclothes, TVs and phones at home? Constructing the facilities, training thestaff, building the supply chains are all very expensive in a country thatisn’t specialized and doesn’t have the geographic advantage of nearbycomplementary industries, as South Korea has when it buys hardware for itsTVs from China. Expanding “Made in America” would give the average Americanless buying power.
At the core of Trump’s plan is a grand contradiction to save or even createjobs in waning American manufacturing industries just as the countryreaches an almost 50-year low in unemployment.
Recently, the relatively strong (and some say, overvalued) dollar has givenAmericans even more heft when snapping up foreign products; not the faultof foreigners. To make matters worse, Trump has already pushed $1.5trillion worth of tax cuts through Congress and has announced massivefiscal stimulus plans. That can only exacerbate the deficit as imports riseto satisfy the increased spending.
*Fiscal discipline*
If he really wants to reduce the deficit regardless, the Americanpresident’s options at home would be to tighten government budgets,encourage better-off consumers to buy American-made products and getworkers to save more of their wages rather than spend. Punishing thecountries that, after all, buy those goods that America does send abroad iscounterproductive to his goal. Forget the steel tariffs. They’re not likelyto have a big impact on consumer prices in the United States.
However, Trump’s recent pledges to put tariffs on billions of dollars worthof Chinese goods are a sign that he considers protectionism a viablestrategy to “make America great again.” Instead, he could make it poorer. -Agencies