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 Richmans' Trade and Taxes Blog

U.S. Would Profit From a Trade War
Raymond Richman, 4/10/2018

The recent decline in share prices on U.S. exchanges have been attributed by many commentators to fear of a trade war. That fear is irrational. The U.S. economy stands to gain, not lose, from a trade war with China and other trade surplus areas including the Eurozone. Only countries with huge trade surpluses with the US – i.e., China, Japan, Germany and the Eurozone, Korea, and Mexico need to fear a trade war. A trade war with any of those countries would result in the end of their chronic US trade surpluses which have been the bass of slow economic growth of the U.S. economy and the weakening of our manufacturing sectors. Workers in manufacturing in the US have suffered losses of millions of good jobs and stagnant and declining wages as a result of the U.S. trade deficits.

The trade agreements have been a disaster for the U.S. because they involve the rewarding of favored industries, e.g., agriculture in the U.S., and the sacrifice of disfavored industries, e.g., steel manufactures in the U.S. They are examples of crony capitalism at its worst. Moreover, after the negotiations, U.S. tariffs that remained are one-half of its trading partners’ average, 2.5% vs. 5.0%.

Chronic trade imbalances have many causes including formal and clandestine trade barriers, inappropriate exchange rates, and lower wage costs. Some commentators have suggested in the case of China to pursue a remedy by appealing to the World Trade Organization. Besides taking years to get any satisfaction, the U.S. cannot even be sure of a favorable outcome. There is a much easier and more certain solution which we described in our book Balanced Trade (Lexington Books, 2014), namely a single-country-variable-tariff applicable to all imports from the trade surplus country which would decrease as trade is brought into balance and increase if the trade imbalance worsens. We generally oppose tariffs on individual products, regarding it as a form of crony capitalism. 

Besides the  single-country-variable-tariff will yield huge revenues to the federal government and help to correct the federal budget deficit.