Trump Plays with Fire on Trade, by Peter Schiff

Trump’s tariffs will end up hurting more Americans than they help. From Peter Schiff at europac.com:

With his announcement last week of broad tariffs on imported steel and aluminum, President Trump launched what could be the first salvo of an all-out global trade war. Seemingly itching for a fight, he gleefully tweeted that “Trade wars are good, and easy to win.” It seems like Trump thinks the conflict will play out much like Ronald Reagan’s 1983 week-long invasion of Grenada rather than the more telling quagmires that unfolded in Vietnam, Afghanistan and Iraq. He’s wrong.

Apart from overestimating America’s bargaining position, Trump and his supporters grossly misunderstand the nature of international trade and how Americans have benefited from a system that has allowed us to continually consume foreign goods on credit. While this “benefit” has also placed a cost on domestic industries, I don’t believe that Trump has any idea how a trade war can reduce current American living standards.

As justification for his surprise offensive, Trump likes to highlight how America’s gargantuan annual trade deficit (which has grown to more than $600 billion during his presidency) is simply the yardstick by which “stupid” American trade policies are subsidizing foreign economies. In his mind tariffs are just a means to take back what we have foolishly given away. As Trump explained via Twitter “ When we are down $100 billion with a certain country and they get cute, don’t trade anymore – we win big.” But does a country with a trade deficit really subsidize the country with the surplus? Or is it the other way around?

Let’s suppose you keep chickens at home, and your neighbor has a cow. Everyday you trade a half dozen eggs for a quart of milk. This is the nature of trade. You offer something that you have in abundance (that other people don’t) for something that someone else has in abundance (that you don’t). But let’s suppose you eat a few of your chickens and your egg production drops to four per day. You continue to get your quart of milk, but everyday your neighbor adds two eggs to the account that you owe. Theoretically, you will one day owe your neighbor a whole bunch of eggs.  But, in the meantime, does that two-egg deficit represent a benefit to you or your neighbor? Remember your neighbor still has to deliver the same amount of milk for less of a current payoff. He MAY get that deferred compensation down the road, but he’s not getting it now. And with every egg you go into the hole, the greater the chances that your neighbor may ultimately get stiffed.

To continue reading: Trump Plays with Fire on Trade

Advertisements

One response to “Trump Plays with Fire on Trade, by Peter Schiff

  1. I’ll tell what playing with fire is, allowing annual 50 billion plus trade deficits. Allowing industry after industry to die while we watch other nations suck our capital out because they represent restriction free, tax free, and labor union free zones.

    After 40 years of this crap I think the American people realize who is lying to them about the wonders of “free trade.”

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.