Beyond Tariff-Free Trade: Rebalancing The US Trade Deficit Is Not Enough

Donald Trump started a global trade war in order to fundamentally transform the way America conducted commerce with the world and the way the global economy works.  Instead of a transformative economic revolution, however, he has made a series of minor concessions to trade partners in order to focus on the renegotiation of NAFTA and trade relations with China.  For its part, the Trump Administration’s update to NAFTA basically tweaked provisions of NAFTA 1.0 in an attempt to rebalance the US trade deficit.  Trump has confronted China with a series of significant tariffs, but a Chinese trade deal is expected to simply focus on issues like forced-technology transfers and Beijing’s pledges to buy more US goods.  While intellectual property rights are a key component to improved trade relations, the very framework of modern trade must be transformed.  

​In its approach to trade, the Trump Administration has chosen to focus on a “rebalancing” strategy.  It is attempting to zero the US trade deficit through the use of leverage, e.g. tariffs.  To accomplish this, officials are willing to embrace pledges to buy more US goods and minor changes to existing trade policies that can be expected to improve US exports.  What this approach does is allow economists to project a decline in the US trade deficit, which gives the President a political victory.  What it does not do is actually address the economic issues created by tariff-free trade.  It does not change the mechanisms of the economy.  Not only are pledges to buy more US goods likely to fall short, such interventions do nothing to transform the economies of the globe.  They simply act as subsidies.  Similarly, replacing tariffs with quotas only distorts trade and the economy.  This superficial approach to improved trade is not what is needed.
 
Instead of using tariffs as leverage to force concessions, Trump and other world leaders need to embrace tariffs as a key component of functional global markets.   An economy exists solely to distribute a nation’s resources in the most efficient manner possible by encouraging efficient consumption, innovation, and the development of improved production.  In other words, the economy exists to provide for the growing needs and wants of people.  The biggest issue with unfettered free trade is that it deleverages workers and localized businesses by forcing them to compete as part of a global workforce struggling to provide for global demand.  Based on “supply and demand,” a massive global workforce without enough work means workers face downward pressure on their wages.  Tariff-free trade essentially turns the global economy into a lowest bidder economy where market forces pressure consumers and businesses to continually seek out lower costs.
 
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 also a necessary part of a progressive revenue stream for government.
 
With that in mind, 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 pullback 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.  Bilateral trade relations must be recalibrated with apolitical tariffs to better address the economic interests of average people in all countries.  The Trump Administration is not creating the diplomatic framework needed to do that.