Trump’s de­fense of tar­iffs based on du­bi­ous claims

The Star Democrat - - FRONT PAGE - By JONATHAN LEMIRE and CHRISTO­PHER RUGABER As­so­ci­ated Press

WASH­ING­TON (AP) — He’s been con­tra­dicted by one of his top ad­vis­ers, dinged in reg­u­lar fact checks and called out by top econ­o­mists. Still, Pres­i­dent Don­ald Trump has held firm to du­bi­ous dec­la­ra­tions about trade pol­icy, rais­ing ques­tions among ex­perts and even his al­lies about whether he ei­ther can’t — or won’t — grasp the fundamentals of the is­sue.

This week, as he es­ca­lates a trade war with China, Trump has mis­stated how the tar­iffs are paid, who pays them and the sig­nif­i­cance and size of the trade deficit. His as­ser­tions came even as oth­ers in the White House worry about whether Trump’s zeal for tar­iffs could have a po­lit­i­cal price.

The pres­i­dent’s fre­quent claims pro­vide a win­dow into his long-held be­liefs on trade and the dif­fi­culty of chang­ing his eco­nomic world­view. They also sig­nal that Trump may not back off the hawk­ish ap­proach eas­ily and is al­most cer­tain to con­tinue to mis­rep­re­sent the likely im­pact.

Trump’s views on tar­iffs depart from con­ven­tional eco­nom­ics in at least three ways: He has re­peat­edly claimed that the Chi­nese — not Amer­i­cans — are pay­ing the 25% tarif f he has im­posed on $250 bil­lion of Chi­nese im­ports. He has de­scribed the trade deficits that the United States runs with other in­di­vid­ual coun­tries as to­tal eco­nomic losses. And he ar­gues that the U.S. trade deficit with all other coun­tries com­bined is a re­sult of bad trade pol­icy.

On all three ques­tions, trade ex­perts fun­da­men­tally dis­agree.

It is the U.S. com­pa­nies that im­port — re­tail­ers, whole­salers and man­u­fac­tur­ers — that pay the du­ties that Trump has im­posed, not Chi­nese com­pa­nies. One of Trump’s top eco­nomic ad­vis­ers, Larry Kud­low, ad­mit­ted as much in a tele­vi­sion in­ter­view Sun­day.

But Trump tweeted on Mon­day: “Tar­iffs are NOW be­ing paid to the United States by China of 25% on

250 Bil­lion Dol­lars worth of goods & prod­ucts. These mas­sive pay­ments go directly to the Trea­sury of the U.S.”

That’s sim­ply not true. It’s cer­tainly pos­si­ble that a huge re­tail chain, for ex­am­ple, could push its Chi­nese sup­plier to cut its prices to off­set the tar­iffs. China’s cur­rency may also de­cline in value, which makes Chi­nese ex­ports cheaper. And in­ter­na­tional cor­po­ra­tions may de­cide to lo­cate their plants else­where, such as in Mex­ico or Viet­nam, de­priv­ing China of jobs and ex­port rev­enue.

But stud­ies re­leased in March found that those fac­tors haven’t made much dif­fer­ence, and that nearly the en­tire cost of the im­port taxes is fall­ing on U.S. con­sumers and busi­nesses. One of the stud­ies , by econ­o­mists at UCLA and the World Bank, found that Amer­i­can firms and shop­pers lost $68.8 bil­lion last year be­cause of higher tar­iffs.

There has long been divi­sion within the West Wing about tar­iffs’ ef­fec­tive­ness. Trump has of­ten sided with China hawk Peter Navarro, who ar­gues that tar­iffs work. But Gary Cohn, the for­mer direc­tor of the Na­tional Eco­nomic Coun­cil, ar­gued stren­u­ously against them.

“Tar­iffs don’t work. If any­thing, they hurt the econ­omy be­cause if you’re a typ­i­cal Amer­i­can worker, you have a fi­nite amount of in­come to spend. If you have to spend more on the ne­ces­sity prod­ucts that you need to live, you have less to spend on the ser­vices that you want to buy. And you def­i­nitely don’t have any­thing left over to save,” Cohn told the “Freako­nomics” pod­cast in March.

His ef­forts to bring Trump around to that way of think­ing were a fail­ure.

“I was los­ing the war on tar­iffs ev­ery day with the pres­i­dent. I knew I wasn’t con­vinc­ing him I was right,” Cohn said in the in­ter­view. “I was not go­ing to take a 74-year-old man who’s be­lieved some­thing since he was 30 and con­vince him that I was right.”

Some of Trump’s fel­low Repub­li­cans ex­pressed weari­ness Tues­day about the stand­off with China. Se­nate Ma­jor­ity Leader Mitch McCon­nell de­clared, “Ul­ti­mately, nobody wins a trade war.”

And Kansas Sen. Jerry Mo­ran said: “It’s been said if you don’t like the tar­iffs just don’t buy some­thing from China. I un­der­stand that sen­ti­ment. But what we do in Kansas is we sell to China. Not deal­ing with China is not an op­tion.”

Trade ex­perts typ­i­cally con­sider one na­tion’s trade deficit with an­other as eco­nom­i­cally ir­rel­e­vant. The United States also has a trade deficit with all other coun­tries in the world com­bined, which reached $622.1 bil­lion last year. Most econ­o­mists aren’t very con­cerned about that as long as so many na­tions are will­ing to fi­nance that deficit by pur­chas­ing U.S. Trea­sury bonds and other as­sets.

Trump fre­quently blames the over­all deficit on bad trade deals — he is in the midst of re­work­ing sev­eral agree­ments, in­clud­ing one with Canada and Mex­ico — but that’s not re­ally the cause. A coun­try runs a trade deficit when, like the United States, it con­sumes more than it pro­duces. That’s why the U.S. trade deficit typ­i­cally falls sharply in a re­ces­sion, when Amer­i­cans spend less.

AP PHOTO/EVAN VUCCI

Pres­i­dent Don­ald Trump ar­rives to speak on en­ergy in­fra­struc­ture at the Cameron LNG ex­port fa­cil­ity, Tues­day, May 14, 2019, in Hackberry, La.

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