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Therapy for Those Overcome by Trump’s “Tariff Madness”

Posted: April 17, 2016 at 4:35 pm   /   by   /   comments (0)

Editor’s note: This commentary is a reply to Mark Uncapher’s commentary, “Trump’s Proposed “China Tax” Would Cost Americans $670 Each,” that appeared in the last newsletter.

By Brad Botwin

Back in the mid-‘30’s, the film “Reefer Madness” was released as a cautionary tale for parents to teach their offspring about the dangers of marijuana use and addiction.  In many ways, this cult film is comparable to the 2016 contrived drama that has caused a frantic outcry by the Republican establishment against the GOP’s leading presidential candidate Donald Trump and his call for tariffs on Chinese imported goods.  Are we witnessing real hysteria regarding Trump’s tariff plan? Here are some simple facts that can suppress the hallucinations of those addicted to free trade and Chinese goods.

Chinese exports to the U.S. have grown substantially from $288 billion in 2006 to $482 billion in 2015, with barely a hiccup during the Bush/Obama recession years.  China is by far the #1 exporter to the U.S. but ranks lower when importing U.S. goods, reaching only $116 billion in 2015.  The resulting $366 billion U.S. trade deficit with China continues to expand annually with devastating effects on the U.S. manufacturing industrial base.

Unlike U.S. Government budget deficits where Uncle Sam can simply borrow and print more U.S. currency while adding dizzying amounts to the already staggering $19 trillion national debt, trade deficits actually involve real goods and services. With razor thin profit margins, is it any wonder U.S. industry is struggling to pay for R&D for new and improved products and capital investment to buy updated tooling, equipment and IT systems to stay competitive?  Many businesses are one lost contract away from shutting down, often due to unfair foreign competition laced with non-market pricing, subsidies and currency manipulation.

Our Chinese competitors have fewer restrictions under their version of free trade.  Through Chinese Government currency manipulation and other maneuvers, Chinese companies are often not bothered by concepts such as profits and raising capital for expansion.  Instead Chinese factories are built to flood global markets with manufactured goods priced to eliminate competition and gain dominant market share.  Recent Chinese adventures into steel and solar cells for example have decimated U.S. producers, forcing bankruptcies and closures with the concurrent loss of skilled workforce and related IP.
Later this year, watch for the leading U.S. aluminum company to shutdown of all its smelting operations in the U.S. as Chinese production of raw aluminum, exported at ever decreasing non-market prices has reached levels where no U.S. producers can make a profit.
Do establishment Republicans really believe even the world’s leading U.S. semiconductor industry can stand up to the Chinese Government challenge while continuing to build world class factories, advanced R&D and employ thousands of Americans without concerns regarding return on investment and profitability?  What was seemingly a bilateral trade problem has now blossomed into a clear U.S. national security crisis.

The author of the “China Tax” has a different world view and provides a pedestrian analysis that Chinese imports, multiplied by the 45% Trump Tariff, divided by the number of Americans equals a $670 tax per American.  The last time I recall analysis like this was when former Maryland Governor Martin O’Malley was convinced his millionaires’ tax would bring in lots of revenue.  Instead many millionaires simply left the state and Maryland’s tax base and revenues dropped.

Mr. Trump’s tariff proposal to fairly price Chinese goods entering our market, when combined with his proposed corporate tax cuts, decreased regulations and the elimination of Obamacare will allow American manufacturers to do what they do best: hire workers to produce high-quality, innovative products at competitive prices while reinvesting profits into R&D, capital equipment, higher wages and worker training.  It’s a positive outcome for the U.S. economy and current/future American workforce.  As with illegal immigration and Islamic terrorism, candidate Donald Trump is once again ahead of the curve on handling trade issues.

Sadly the China Tax column is also devoid of important concepts such as fair trade, reciprocity, currency manipulation, domestic content, foreign government subsidies and non-tariff barriers.  It portrays the belief that free trade means unfettered foreign access to American consumers while foreign governments shield their citizens from a vast array of U.S. goods and services. The result is ever increasing U.S. trade deficits and a steady erosion of our manufacturing infrastructure, related skilled workforce and our overall tax base needed to support our national defense, transportation infrastructure, public schools, senior citizens and necessary social welfare programs.

Finally, all good Republican establishment types eventually pull out the 1930 Smoot-Hawley tariffs, imposed on all imports during the Depression, as evidence that this trade practice never works.  Our China Tax column is no different, even adding a quote from former Federal Reserve Chairman Ben Bernanke (who ironically presided over the Bush/Obama Great Recession) to make his point that free trade must prevail at all costs.  Fortunately, other name brand economists like Milton Friedman and Paul Krugman think otherwise about Smoot-Hawley and instead rightly blame the then Federal Reserve’s economic miscues and failure to prevent bank failures for the Depression.

America desperately needs candidate Donald Trump’s economic vision and leadership to grow our economy beyond the anemic Bush/Obama levels of the past decade.  Our nation can no longer prosper under the Republican establishment’s death by a thousand cuts “free trade madness” policies.