If I was an American citizen, I think I
would be deeply embarrassed at my country’s president’s ignorance of the most
basic principles of economics. Here are
just a few of the simple facts the so-called president doesn’t appear to
comprehend:
Ÿ Import tariffs impose
costs – while American steel makers may welcome
curbs on their overseas competitors, steel users such as Boeing – one of
America’s biggest exporters – and General Motors will face higher costs for
their raw materials, which will make them less competitive (and leave Boeing’s
main rival Airbus laughing all the way to the bank). This will reduce exports, cost jobs, raise
prices for American consumers – hurting retailers as well – and even make
Trump’s promised infrastructure upgrade more costly – bridges, tunnels and
railways (not to mention ridiculous border walls) consume enormous volumes of
steel.
Ÿ Import tariffs invite
retaliation – countries which see their exports to
the US restricted are very likely to impose barriers to US exports in a
tit-for-tat move. Back to square one!
Ÿ Trade wars have no winners – ultimately everyone ends up paying more (see above).
Ÿ Trade deficits are normal – it is pointless to worry too much about the US trade deficit with
a single country, because it is part of a much larger pattern of deficits and
surpluses. Every trading country will
have a surplus with some countries and a deficit with others, depending on what
it imports and exports. America may have
a huge deficit with China, for example, but it has a massive surplus with
Australia.
Ÿ You need to look at the
whole value chain – much of America’s trade deficit
with China is accounted for by American companies outsourcing their
manufacturing to China (as well as other markets where labour costs are
lower). True, this may take jobs from
American workers, but it brings back profits to the USA and makes goods cheaper
for American consumers – if every T-shirt
in Walmart was US-made, it would probably cost several times as much. And manufacturing is only one stage in the
entire value chain (does Trump even understand that concept?) – value is also
added by raw material production, design, packaging, shipping, distribution and
retailing, etc. – much of which remains in American hands.
Ÿ Giving the rich more money
doesn’t benefit the economy – while tax breaks for
the super-wealthy – with a handful of token concessions to the middle class –
has been the policy of every Republican administration since Reagan’s, the
money has never been shown to boost the economy significantly. The reason for this is simple – rich people
already have all they need, so if they receive more money they tend to save
it. By contrast, if the poor get more
money they will usually spend it quickly, stimulating demand for goods and
services and thereby creating more jobs.
The one thing the rich do consistently spend money on is supporting
politicians who will continue to enrich them by pursuing the failed
“trickle-down” policy at the expense of everyone else.
The
global economy – which every country is part of – is a highly complex and
heavily inter-related monster. Every
action in one part of it has consequences far beyond the immediate local result. Donald Trump’s butterfly mind tends to alight
on one contentious issue and rush to take some superficially attractive action
in response without analyzing the whole chain of consequences which will
follow. Effective economic leadership
requires joined-up thinking – something for which Trump shows no aptitude wha
