President Trump’s ‘Liberation Day’ trade tariffs are a disaster for America and the world. In the name of “fairness” and “balancing trade,” the United States is slapping double-digit tariffs on all imports (except from Russia, Belarus, North Korea and Cuba!).
This week, the administration paused most of them for 90 days – though it raised tariffs on Chinese goods to 125 percent.
The logic? If America buys more from a country than it sells to it, that must be unfair. So, tax the imports to even things out.
But that is not how trade works. It has never been.
Countries run trade deficits and surpluses with each other for many reasons. Some make certain products more efficiently. Others consume more than they produce. And some just have a taste for specific goods – like Scottish whisky, Korean phones and Japanese cars.
Trying to equalise every trade relationship through tariffs is like trying to make every household earn exactly what it spends at each shop. It is nonsense. Worse, it is damaging.
Maurice Obstfeld, a former IMF Chief Economist, recently pointed out that these tariffs will hit Americans hardest – and they still might, if reintroduced after the 90-day pause. The Trump administration is taxing imports in precisely the areas in which the US economy gains the most – like cheap inputs for manufacturing or products no longer made domestically.
The result will be higher prices, less choice and less prosperity. It is economic self-sabotage dressed up as patriotism.
The temporary suspension is a welcome reprieve. Markets rallied, and businesses breathed a sigh of relief. But the underlying strategy has not changed – and neither has the threat. The administration’s decision to hike tariffs on Chinese imports to punitive levels shows that this trade war is far from over.
Tariffs, especially those set under emergency powers, also create a climate of uncertainty. Businesses struggle to plan when trade policy changes randomly. Investment slows. Supply chains are disrupted. Jobs are lost. And for what? A dogmatic crusade against trade balances that do not need fixing in the first place.
But here is the good news: the rest of the world does not have to follow America’s lead.
Instead of retaliating, other countries should do the opposite. They should remove their own remaining trade barriers, open their economies further and deepen their trade ties with each other.
That would send two messages: first, that the world will not be dragged into a 1930s-style trade war; second, that free trade still has adult defenders willing to stand up for it.
Let the United States isolate itself behind tariff walls. It is free to do so, damaging as it is.
But the rest of us should double down on openness, cooperation and economic common sense.
We cannot stop America’s self-harm – paused though it may be. But we can choose not to copy it.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE
The logic? If America buys more from a country than it sells to it, that must be unfair. So, tax the imports to even things out.
But that is not how trade works. It has never been.
Countries run trade deficits and surpluses with each other for many reasons. Some make certain products more efficiently. Others consume more than they produce. And some just have a taste for specific goods – like Scottish whisky, Korean phones and Japanese cars.
Trying to equalise every trade relationship through tariffs is like trying to make every household earn exactly what it spends at each shop. It is nonsense. Worse, it is damaging.
Maurice Obstfeld, a former IMF Chief Economist, recently pointed out that these tariffs will hit Americans hardest – and they still might, if reintroduced after the 90-day pause. The Trump administration is taxing imports in precisely the areas in which the US economy gains the most – like cheap inputs for manufacturing or products no longer made domestically.
The result will be higher prices, less choice and less prosperity. It is economic self-sabotage dressed up as patriotism.
The temporary suspension is a welcome reprieve. Markets rallied, and businesses breathed a sigh of relief. But the underlying strategy has not changed – and neither has the threat. The administration’s decision to hike tariffs on Chinese imports to punitive levels shows that this trade war is far from over.
Tariffs, especially those set under emergency powers, also create a climate of uncertainty. Businesses struggle to plan when trade policy changes randomly. Investment slows. Supply chains are disrupted. Jobs are lost. And for what? A dogmatic crusade against trade balances that do not need fixing in the first place.
But here is the good news: the rest of the world does not have to follow America’s lead.
Instead of retaliating, other countries should do the opposite. They should remove their own remaining trade barriers, open their economies further and deepen their trade ties with each other.
That would send two messages: first, that the world will not be dragged into a 1930s-style trade war; second, that free trade still has adult defenders willing to stand up for it.
Let the United States isolate itself behind tariff walls. It is free to do so, damaging as it is.
But the rest of us should double down on openness, cooperation and economic common sense.
We cannot stop America’s self-harm – paused though it may be. But we can choose not to copy it.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE
8 comments:
Rubbish.
Thank you, Dr Hartwich for explaining in clear terms the principles of free trade, now being garroted by Trump's tariff nonsense. Buy from the best; sell on the best. That's how internal commerce works, and how international free trade works, or should.
So China and India will drop all their trade barriers? Yeah, right and unicorns will appear at my front door.
It is interesting that it seems to be only Trump's fault, but never those that already had the trade barriers in place.
I trust that NZ tax is not being wasted into the NZ Initiative .
Hon Winston Peters with wisdom and dignity asked everyone to calm down and let the "dust settle" about tariffs.
But NO the NZ initiative leads the pack with " US deliberately harming itself" and "Liberation day trade tariffs are a disaster for America" and " a dogmatic crusade against trade balances that do not need fixing in the first place" and as a final middle finger to USA from NZ Initiative they say " here is the good news : the rest of the world do not have to follow America's lead . NZ can trade elswhere .
NZ Initiative should explain how many NZD is earned from a $1,000,000 export of NZ wine to America, they pay NZD$1,820 million and to Australia we get the lesser NZD1,200,000.
Why would NZ Initiative continually denigrate President Trump and the United States of America? The NZ Initiative are NOT exporters .
Surely Dr Hartwich contradicts himself when talking about free trade being practiced by those who don’t practice it themselves.
He is suggesting dummies like me don’t understand that free trade is just a matter of semantics - you can expect your fellow traders to operate with both hands tied behind their backs while allowing competitors to take advantage of your hamstrung industries. Yeah right!
If this war of attrition is to end peacefully, it will only happen if both sides feel they are operating on a level playing field.
That certainly isn’t the case at present and so maybe Dr Hartwich should go back to night school where the “grown ups” he describes might learn a thing or two about the real world and why we are embroiled in this belated attempt to put things right.
The NZ Initiative appears to be very pro-European and definitely not pro-US. I hope they are not advising Luxon. A bit like Finlayson advising National on Treaty matters. Luxon should be listening to diverse economic views. This has been explained many times. The US has every right to implement policies which were voted for. There were many areas of the US stagnating because obviously China is able to produce goods cheaper. Are Chinas employment practises ethical though? Probably not. Some commentators are saying New Zealand will benefit from the tariffs. If other countries have higher tariffs we could well benefit. All Luxon needs concern himself with is New Zealand's interests. Every country will look after their own interests.
At least New Zealanders now know where the National Party are getting poor advice from.
Janine says: "The US has every right to implement policies which were voted for. There were many areas of the US stagnating because obviously China is able to produce goods cheaper."
While much of his 2016 program was never implemented because it would harm the interests if the elite class in the US (principally foreign military adventures and mass immigration, illegal or legal), Trump's "America First" anti-free trade policy still stands and, partly, this is why people voted for Trump.
Oliver has spent a lot of time recently decrying "threats to democracy" (be it from Trump or Putin of the rise in popularity of the "far right" in Germany and elsewhere in Europe), yet, when Trump puts democracy in action with his tariffs (even though he has bungled the implementation), Oliver still isn't happy. Is this because Oliver isn't that interested in "democracy" at all, only whether the things he and his colleagues want can be achieved under a merely nominal democracy, regardless if such "democracy" is representative of popular will?
Post a Comment