Tariffs and sanctions have played a defining role in the Trump Administration’s relations with the nations of the world. As Donald Trump prepares to give his second speech to the United Nations as the US President, Washington and Beijing are implementing another round of sanctions in what is shaping up to be a trade war. The US is imposing a 10% tariff on $200 billion worth of Chinese goods and China is imposing 5% to 10% on $60 billion dollars worth of American goods. Consumers in both nations are expected to pay more for those products being targeted. In the long-term, the Trump Administration and tariff-advocates hope the elevated costs of imports, like in the case of rising energy prices, will encourage domestic production as well as more localized sourcing of raw materials and goods. Tipping the balance to ensure American-made products are competitive and shifting the economics of the global economy to shorten global supply chains is one thing, yet too many tariffs can destroy jobs and force an economy into recession.
Paying a little more at the local store to help the neighbors keep their jobs and build their businesses is sometimes needed to bolster the local economy and community. Given that few communities, or nations, are thoroughly self-sufficient while most local consumers enjoy globally sourced products, isolating local and national economies from the world is both impractical and an example of bad governance. The judicious use of tariffs, therefore, helps tool the economic mechanisms of the global economy, so local production remains viable and imports remain affordable. It is about balance. The Trump Administration’s tariffs are high and broadly applied. Not only that, the US is not simply targeting China. The Trump trade war is a global trade. To boot, its undiplomatic approach to trade negotiations inflames tensions between trading partners. The Trump Administration may be able to coerce concessions and trade deals, e.g. the South Korean Free Trade Deal from a handful of US trade partners, but its approach is hurting the future of US trade ties.
As consumers begin to experience price increases and the benefit of increased domestic production remain years away, i.e. it takes time to retool the economy, critics of tariffs want people to believe the only choice is free trade or trade war. Where critics of tariffs in general want people to react to rising prices and reject trade barriers in all of their forms, there is another way forward. It is called diplomatic engagement and mutually-beneficial bilateral trade relations. 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 a more localized focus. As such, trade agreements must be recalibrated regularly to reflect shifting economic interests. To do this, the US must build the diplomatic infrastructure needed to periodically address shifts in trade relations. The Trump Administration has not this. In fact, it has failed to even create an explicit, narrowly defined objective that US trade partners can use to build potential compromise solutions.
Clearly, trade policy cannot be based on politics. Although all policies are driven by politics, they must be grounded in sound logic and reality. Unfortunately, the global economy is very complicated, so it is very difficult to prescribe sound policies based on the research of today. Much of it suggests free trade is the most straightforward option available. Free trade, however, comes with costs that most advocates are unwilling to confront. Because a stable global economy depends on healthy national economies, 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. This means the viability of local producers must be addressed. Helping local economies thrive in a globalized world economy requires, in part, a focus on specialization. The Trump Administration nor the world leaders forced to the negotiating table with President Trump are for pushing for non-free trade policies that offer mutual benefits.
In the brewing world trade war, there is a great deal of fear-mongering. There is also a lack of focus on engagement. In many respects, the so-called Trump trade war is as much a reaction to the sudden shift away from the push for global free trade. If one approaches the issue from the perspective of an objective observer, however, tensions can be alleviated by finding the middle-ground shared by pro-free trade factions and critics of free trade. Unfortunately, the Trump Administration did not approach US trade policies with a set of well-defined goals and policies, which makes it hard to actually resolve the conflict Trump has initiated. True to Donald Trump’s approach to business, politics, and life, the US President has shaken up the status quo, yet failed to offer an better alternative. Trump needs someone else to actually solve the problem. World leaders need to step up and offer the US President options that address the concerns of free trade advocates and critics of free trade. Instead of silencing the push for trade policy reforms in any form, which does enjoy broad political support in the US, world leaders need to lead the world toward balanced trade.
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