image2

CRAFT NEWS REPORT

CRAFT NEWS REPORT

CRAFT NEWS REPORTCRAFT NEWS REPORT

Raising Tariffs Vs. Freer Trade: Which Is Best? An Opinion

Trump can pressure the Chinese government to make a fairer trade agreement with the United States.

By: James Edwin Gibson


Completely free trade with no tariffs is best in an ideal world. But, we don’t live in an ideal world. And, for better or worse, President Donald Trump is a decision maker who seeks to make decisions that change things. He often plays “hardball”—sometimes successfully, sometimes not.

    

Friday, May 10, 2019, President Trump took action to raise tariffs on imports to the United States from China according to numerous news reports, such as the ones linked in this sentence from CNN[1], Reuters[2], and CBSNews[3].


Raising Tariffs Vs. Free Trade

Are tariffs a good thing? Other things being equal, I strongly prefer free trade without any tariffs. Tariffs typically raise prices for consumers and decrease the quantity and variety of good available. Tariffs also reduce the amount of trade between countries, because the higher prices typically result in persons buying fewer imports.


Furthermore, many products must be imported. For example, bananas are probably my favorite fruit. And, here in the United States, we don’t grow bananas, so they must be imported. I would be upset if a high tariff created a banana shortage or higher prices for them. Of course, bananas from other countries are not part of the trade dispute with China, but the United States does import a huge quantity of a wide variety of items from China.


Look at the labels on many items you purchase to get an idea.


As stated earlier, tariffs often have negative effects. When the United States, China, and other nations set tariffs, they limit trade, which typically results in fewer items being available for purchase and their prices being higher.


Trump’s Logic in Raising Tariffs on Imports from China?

Perhaps only President Trump knows his complete logic in raising tariffs on imports from China. But, my guess is that Trump feels that China needs us more than we need them. 


Therefore, by raising tariffs, which make Chinese exports to the United States more expensive and will likely lead to a decrease in Chinese sales, Trump can pressure the Chinese government to make a fairer trade agreement with the United States and reduce the unfair trade practices China has allegedly (almost certainly?) been engaging in with the United States and many other countries. 


A post from the President on Whitehouse.gov[4] nearly a year ago discusses some of these allegedly unfair practices. Furthermore, other nations, such as Japan and members of the European Union, are also upset about Chinese trade practices, as noted by numerous articles, including a 2018 Financial Times piece[5]. 


A main goal of the increased tariffs is probably to get China to reach a trade agreement with the United States that makes the international trade between the country fairer, more beneficial to the United States than it is now. 


Free Trade Agreements

Ideally, I would love to see completely free trade between all countries, as long as products are produced and transported safely and fairly. However, the governments of some nations do not do regular inspections in factories and other production facilities to help ensure quality and safety, do not take steps to prevent copyright and patent infringement, etc. 


Nations and groups of nations negotiate, approve, and enforce trade agreements to help progress toward fair, free trade. The United States and China are seeking to find enough common ground to achieve a trade agreement between the countries. I hope they do. But it isn’t easy. 


You are probably familiar with the North American Free Trade Agreement (NAFTA), which took effect between the United States, Canada, and Mexico in 1994. While I believe this helped improve trade between the countries and was a good thing at the time, it had numerous weaknesses which I won’t take time to detail here. 


Furthermore, the NAFTA document was 2,000 pages long according to an article on thebalance[6]. Like many other “free trade” agreements, it contains numerous provisions that show favorable treatment to various groups in the three countries. I would think that a true free trade agreement would be only a few pages long. Would you want to be a businessperson seeking to establish, maintain, or expand an international business and supposedly be responsible for reading and adhering to this lengthy agreement? 


Even reading the sections pertinent to a particular business would be time consuming. I wonder if anyone has actually read the entire agreement. One of President Trump’s campaign pledges was to replace NAFTA, and a proposed revision to it is currently going through the ratification process. 


A Chinese fair/free trade agreement likely won’t be a simple document either, if one is produced from ongoing negotiations. But, it can be a big step in the right direction. 


Closing Thoughts

As I see it, one of the biggest successes of modern society is the widespread trade between countries around the world that enables the economies of various nations to produce and sell more goods than they otherwise could—while allowing citizens around the world to enjoy a wider variety and greater quantity of products than ever before. And, trade agreements are helping gradually improve work conditions and quality of products worldwide, while continuing the expansion of trade, as I see it. 


However, in the short term, higher tariffs on goods coming to the United States from China may decrease this trade between the two nations. The Chinese may suffer more than the United States, which will (I’m guessing Trump hopes) give the Chinese government incentive to reach an agreement with the United States (or better yet with some other countries around the world, too) that leads to fairer, freer trade between the countries. If such a trade agreement is reached, and it leads to even more trade between the countries, it will be a win-win situation. And part of that win-win situation could be Chinese consumers benefitting from more United States products appearing in Chinese stores at cheaper prices. 


President Trump seems to have a history of making quick decisions to help institute changes he wants. Some decisions work out; some do not. Time will tell if his gamble in raising tariffs on Chinese imports will work. 


My optimistic guess is that Trump’s “hardball” pressure will help lead to a trade agreement between the two nations that benefits both countries. In an ideal world that agreement would come without a tariff increase, but my sometimes idealistic outlook is perhaps less constructive than Trump’s more pragmatic approach in our real world.

 

ENDNOTES:    


[1]  Pham, Sherisse; The US just raised tariffs on Chinese goods. China says it will hit back”; CNN; May 10, 2019; webpage accessed May 11, 2019; https://www.cnn.com/2019/05/10/business/china-us-tariffs-trade/index.html 


[2] Lawder, David and Pamuk, Humeyra; “Trump ratchets up tariff threat after talks show no progress”; Reuters; May 10, 2019; webpage accessed May 11, 2019; https://www.reuters.com/article/us-usa-trade-china-tariffs/trumps-tariff-hike-on-200-billion-of-chinese-goods-takes-effect-idUSKCN1SG08X 


[3] “Trump’s tariffs on China: How do they work and what do they aim to achieve”; May 11, 2019; webpage accessed May 11, 2019; https://www.cbsnews.com/news/tariffs-on-china-what-are-they-and-how-do-they-work-and-what-do-they-aim-to-achieve/ 


[4] Trump, President Donald; “President Donald J. Trump Is Confronting China’s Unfair Trade Policies”; White House website; May 29, 2018; webpage accessed May 12, 2019; https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-confronting-chinas-unfair-trade-policies/ 


[5] Mitchell, Tom; “Trade wars: China fear an emerging united front”; Financial Times; September 11, 2018; webpage accessed May 12, 2019; https://www.ft.com/content/ee361e2e-b283-11e8-8d14-6f049d06439c 


[6] Amadeo, Kimberly; “What Is the North American Free Trade Agreement? Six Things NAFTA Does”; Webpage updated October 31, 2018; webpage accessed May 11, 2019; https://www.thebalance.com/nafta-definition-north-american-free-trade-agreement-3306147 


DISCLOSURE: The author’s second job is as a part-time store clerk at a retailer. This retailer will probably be impacted by the increase in tariffs on imports from China due to many of its products coming from China.


NOTE: This piece is being submitted to Craft News Report on May 12, 2019.


Copyright © 2019 James Edwin Gibson. James is the author of the books True Christianity: It May Not Be What You Think (2014, second edition 2015, third edition 2017) and Several True (I Think) Stories: Can Truth Be Stranger Than Fiction? (2016, second edition 2017). You may contact James at jamesedwingibson@yahoo.com regarding this column. James thanks his friend Paul for publishing it on his website, thanks you all for reading, and hopes you all enjoy God’s blessings!


YOUR COMMENTS