All Financial Wisdom
Tariff War Against China: We Already Tried This is 2002, With Catastrophic Results
The United States has a trade deficit with China of $375 billion dollars, a figure that is growing every year. This increase in the gap between the goods and services that the US purchases from abroad is interpreted by the Trump administration as a weakness of the national economy that is easily reversible through economic warfare. Hence, he has imposed tariffs of 25% of steel imports and 15% on aluminum imports from China.
How China responds: with more of the same: Tariffs of 15% will be applied to hundreds of US products, especially horticultural products, that will be on Asian soil, while pork and related products will have a 25% tariff.It seems to be only the beginning of an escalation of tensions between both economies.
A lesson not learned: according to most national and international economists, this is not the way to proceed. Nor was it in 2002, when the Bush administration imposed similar tariffs on steel imports and the program had to be discontinued just 20 months later. The following year, according to a report conducted by the metal industry itself, the lien had caused the indirect loss of 200,000 American jobs, more than the total number of people employed in the steel industry at that time and many more of those who work in it to this day (it is estimated that the current policy will lead to the loss of 146,000 jobs.
And what alternative policies could we apply? If the idea is to reduce the deficit, economists have espoused three possible solutions: lower domestic consumption and higher levels of savings (put simply, US citizens consume more than they generate), a depreciation of the exchange rate or a burden on the inflows of foreign capital.
Because encouraging the fear of China has helped him a lot to get to the White House and jobs in the metallurgical sector, although minimal in the country, are highly symbolic.
It is part of that protectionist daydream that will make those good jobs come back and “Make America Great Again.” In reality, purchases of steel and aluminum account for only 3.5% of the trade deficit with China.
Result: we are getting closer with each day to abandoning the Pacific Trade Treaty, to foergetting the draft of a new agreement with Europe (the TTIP), to putting the kibosh check on the survival of Nafta.
How well is the US economy doing with Trump? Pretty good, actually. With the exit of the market of hundreds of thousands of workers during the recession, the unemployment figures are going down, the economy is growing and the markets are (generally ) exhibiting an upward trend. It is debatable how much of this can be attributed to Trump vs what the Obama administration actually started, but that argument is for another day.
So we should all be happy, right? This will get worse before it gets better.