Trump is bringing the world closer together

Trump is bringing the world closer together

China is now thanking Trump for all the tariffs imposed on every country and island in the world (except Russia). China’s trade surplus has topped $1 trillion for the first time in history and total world trade has increased since Trump’s “Liberation Day” tariffs. China has found new trading partners or has increased its trade with old partners. Trumps tariffs are between the US and everybody else and not between China and everybody else. So while back in the 1930s the Smoot-Hawley Act led to a sharp fall in world trade by 65% between 1930 and 1933. Now the opposite has happened. With Smoot-Hawley the other countries imposed their own retaliatory tariffs. In the case of Trump’s tariffs that did not occur. Only China and Canada had the temerity to counter the US tariffs with restrictions of their own. Countries started lowering barriers between themselves to make up the loss of trade with the US. 

Trump has brought world closer together. Relatively little of US GDP (14.3 percent) depends on trade whereas our 10 largest trading partners are much more dependent upon trade with imports and exports constituting over 50 percent of their GDP. Since the imposition of the Trump tariffs, China’s exports to the US have fallen by an astounding 65 percent. However, Chinese exports to Southeast Asia was up by 61%, to Japan and Korea by 41%, to Africa by 35%, to the European Union by 28%, and to India and Latin America by more than 10%. All totaled, Chinese exports will grow by 8 percent while US exports will fall by 3.4 percent. China and India have even cooled their long standing border dispute and are becoming closer due to the increased trade. Trump’s threatening to increase India’s tariffs to 50 percent if they didn’t stop buying Russian oil led to an increase of 33 percent in trade with China.

We are bringing the world closer together while we are isolating ourselves economically. Trump apparently thinks that this is a good thing as he keeps insisting that his tariffs will somehow make us better off, evidence to the contrary. Almost 50 percent of all US imports are intermediate (not final) goods and the tariffs increase input costs. Instead of expanding domestic production as the president asserts, the opposite happens and production costs increase leading to increases in output prices and a reduction in consumer demand. On the export side, US goods get relatively more expensive than their foreign competition meaning lower US exports and causing the US to be less competitive in world markets. Will this mean that Boeing will sell fewer airplanes? Will the US defense industry lose sales to foreign competitors with the higher prices? Most likely. And if the US companies decide to keep prices competitive by absorbing the increase in input costs, they will lose profitability and have to retrench and lay off employees. Manufacturing employment has fallen for nine consecutive quarters.

Since it seems that Trump’s tariffs are constantly changing I don’t know what they are now for each country. For China they were once 150 percent and settled down to 47.5% and now there are being made changes on selected products. The same has occurred with Canada whose economy is perilously close to going into recession causing it to sign new trade agreements with China and the EU. It was once feared that Mexico’s economy would go into recession but the opposite has happened. Mexico’s exports to the US have actually increased. Although automobile related exports fell, other exports rose. Mexico still faces the high tariffs: 25% on non-U.S. content in autos, 50% on aluminum and steel and 25% on non‑USMCA‑compliant exports. But 85% of Mexico’s exports are USMCA compliant. Mexico’s manufacturing has increased as countries with much higher tariffs have moved some production to Mexico for export to the US. In all Mexico is estimated to have captured 25% of the US trade deficit with China.  Caramba!