Trump’s tariffs offer could outgun Reagan

The US can determine which nations want freer trade and which seek to keep protectionist barriers

President Donald Trump won a victory for freer trade last week when he and the president of the European Commission, Jean-claude Juncker, agreed to find ways to lower tariffs and other barriers to each other’s exports. The outlines of the deal are still sketchy, but they call for the Europeans to buy more American petroleum, soybeans and manufactured goods and for Trump to reduce his vehicle and steel tariffs. We were particularly heartened that Mr Trump and the Europeans now have a handshake agreement to aim for zero tariffs on both sides of the Atlantic.

This is a winning strategy that is fully consistent with what Trump has often told us: his threat of tariffs is a negotiating tactic to get to lower trade barriers and a “level playing field.”

The next step should be to extend this zero tariff offer to other key allies, including Britain, Canada and Mexico.

If Mr Trump’s goal is more jobs and higher wages, America comes out the big winner under the zero tariff scenario. A study by the president’s own Council of Economic Advisers calculates that the average American tariff is 3.5 per cent, while the average European Union rate is 5 per cent and China is nearly 10 per cent. On a level playing field, American companies can compete with anyone, and our exporters will gain advantage if trade barriers are abolished.

The alternative is higher tariffs on steel, aluminium and hundreds of products imported from other countries, particularly China. Those actions have led to retaliatory tariffs on products grown or manufactured in America, hurting farmers, the stock market and economic growth.

With this offer to abolish tariffs, Mr Trump might be borrowing a page from Ronald Reagan’s playbook. Throughout much of his presidency, Mr Reagan was portrayed as an anti-soviet hawk because he oversaw a huge expansion in American military spending. But at a 1986 summit in Reykjavik, he proposed to the leader of the Soviet Union, Mikhail Gorbachev, that both countries should abolish their nuclear arsenals. This caught the Soviets by surprise, and though the two leaders left Iceland with no agreement in hand, Reagan’s bold strategy ultimately laid the path to the greatest period of nuclear disarmament in history.

What Trump has proposed to our trading partners is similar: the United States will abolish all its tariffs, subsidies and other trade restraints on their exports if they do the same for American exports. This would be the economic equivalent to total trade disarmament. A no-tariffs strategy would also allow the US to seize the moral high ground. Trump would be transformed from the evil disrupter of international commerce to a potential saviour – just as 30 years ago Reagan’s image changed from superhawk to peacemaker almost overnight.

Some question whether this would work because in China and other countries, non-tariff barriers are the biggest deterrent to exports. We agree that non-tariff restraints – such as foreign companies stealing our patents with impunity, subsidies to stateowned enterprises and currency manipulation – are a problem. But reducing tariffs creates momentum for tearing down other trade restraints.

Lowering tariffs will be an uphill battle. Freer trade has always been an elusive pursuit because vested interests on both sides of the Atlantic, whether farmers or manufacturers, will fight to maintain tariffs that benefit their products.

But the EU negotiations provide Mr Trump with a clear signal that he can’t win just by swinging the stick of higher tariffs. He also needs to offer the carrot of lower barriers. By putting zero tariffs on the table, Mr Trump will also be able to determine which nations are genuinely committed to freer trade and which prefer to keep their protectionist barriers in place.

Free trade is a pillar of prosperity and a win-win for trading partners. Just as no one ever thought Reagan would stem nuclear proliferation, if Mr Trump aggressively pursues this policy, he could build a legacy as the president who expanded world commerce and economic freedom by ending trade barriers rather than erecting them.

Stephen Moore and Arthur Laffer are informal economic advisers to President Trump. Steve Forbes is chairman of Forbes Media

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