Tariffs: Trump Right But...

I agree in free and fair trade. Tariffs in the US are lower than most all of our trading partners (see first chart). This is not fair to the US.

Additionally, the World Trade Organization (WTO) allows developing countries to have even higher tariffs. The WTO considers China a developing country, so its tariffs are higher and the OWT considers that to be fair. It isn’t. China is the second largest economy in the world, and the largest producer of many goods. China doesn’t deserve its “developing country” status and higher tariffs in the eyes of the WTO. For instance, China’s tariff on car imports is 25%. In the US the tariff is 2.5%. China is protecting about 55% of its industries and the US only 7%.

Plus a lot of countries we trade with have a value added tax (VAT) but they do not charge the VAT on exports. This is unfair to the US, because the US has a sales tax and it is charged on its exports.

The higher tariffs and how most countries don’t charge the VAT on exports, give foreign countries an unfair advantage when it comes to world trade overall (see second chart).

In sum, Trump has a good point. He should make that point using this data. Make it publicly. And state it over and over again. And selectively jack up US tariffs to put some teeth into his position, like he has done with steel and aluminum.

Trump should not walk out of the G-7 in a huff, like he did this weekend. Not bad mouth any of the leaders, like he did Canada’s prime minister. Not reverse his decision on supporting the G-7 communique after he agreed to support it. Because in the end, that in-fighting and his reckless behavior gets the media focus, rather than the strong argument he is making on the unfair trade practices of the rest of the G-7 members.

Trump makes this kind of mistake all the time. He has a strong argument or there is good news shining his way, and he stomps all over it by saying something he shouldn’t or being reckless in his approach. It is one of the reasons his approval rating is 45% when it should now be about 60%.

Trump has surprised me so far turning out to be the most conservative president of my lifetime. Bravo. He has a lot of enemies and is getting the best of most of them, but that one in the mirror is his toughest. Trump needs to find more discipline, and focus what he says and does on his winning agenda.