Political and business players across the globe have reacted to news of steel and aluminum tariffs from the Trump Administration in a very negative and panicked way. Boisterous critics are warning of an impeding trade war. It is a fear that seems to be coming to fruition as even European leaders threaten to impose retaliatory tariffs in response to Trump’s initiatives. Given the costs that a drastic series of trade policy shifts could inflict onto the global economy, people are right to be nervous. Framing the policy shift as a retaliatory measure made in response to unfair trade practices and trivializing a trade war by tweeting things like "trade wars are good," President Trump has certainly done his part to evaluate tensions, but the prospects of a trade war are actually the result of a bad worldview, not just Trump’s brash ways.
A trade war, whether sparked over new US tariffs or not, would be a conflict driven solely by politics. The battlefield would be the global economy and the weaponry would be trade policy, but a trade war would be the choice of political and business leaders from across the globe. The goal would be to inflict enough damage on the domestic economies of aggressor nations to compel consumers citizens to rise up against their political leadership and demand the reinstatement of free trade. By raising prices on consumers and cutting jobs, or least stoking fears of rising prices and job losses, aggressors hope to influence public opinion. In other words, the true objective of a trade war would be to save the free trade ideology of tariff critics. It is, however, an unnecessary objective as a brewing trade war could be settled with diplomatic engagement and a recalibration of global trade policies through balanced tariffs.
The prevailing view of tariffs in the era of free trade is terribly negative. To free trade advocates, tariffs are viewed in the same way libertarian-leaning populations see taxes. It is easy to focus on the burden of taxes and interpret their impact as punitive. Taxes are a burden and they can be punitive, but taxes are also a necessity that ensures proper governance and civil infrastructure can exist. It is, however, important to recognize taxes are only purely punitive when political leaders decide they are purely punitive. Tariffs are only purely punitive when political leaders decide they are. It is also true that tariffs place a burden on consumers and they are punitive in nature, but they are just as necessary as taxes. Not only do tariffs help balance the burden domestic businesses face from taxes, tariffs are a necessary part of a progressive revenue stream.
Tariffs help spread the financial burden of government. In 1912, tariffs provided 30% of the US federal government’s revenue; whereas, customs excise taxes and tariffs currently account for less than a percentage of the US federal government’s revenue. Individual tax payers are responsible for 86% of the federal government’s revenue. Recognizing the growing cost of government and ballooning US National Debt, the US government needs to capitalize on alternative revenue streams. Clearly, increased tariffs have an cost impact on consumer, who also tend to be taxpayers and beneficiaries of government services, but a revenue structure that takes a more balanced approach would allow the US government government to pay for lower taxes on individuals and corporations. Because US citizen also reap the rewards of government expenditures, tariffs are not just an added cost to consumers.
That said, the economic interests of trade partners shift very rapidly with the changing nature of the economy, especially in an era defined by democratic uprisings and a pull back from rapid globalization to community-centered thinking. As such, trade relations must be recalibrated regularly to reflect shifting economic interests, yet trade agreements, such as NAFTA, do not include maintenance provisions. A stable global economy depends on healthy national economies; therefore, national economies must be built on industries that serve the local needs of a people with locally plentiful resources that are as local as possible with excess production being used to participate in the global economy. In order to avoid a global trade war and create opportunities through diplomacy, bilateral trade relations must be recalibrated with apolitical tariffs to better address the economic interests of average people in all countries.
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