Zero tariff transactions worldwide should be a high priority of the Trump administration. So says Stephen Moore, Arthur Laffer and Steve Forbes in an op-ed piece in the New York Times. They characterize zero tariffs as the equivalent of Ronald Reagan’s efforts with Russia to mutually reduce nuclear weapons.
Following are some basic facts that are germane to Trump’s endeavors to level the playing field for US manufacturers and exporters. Hopefully you will appreciate that liberals and the press have been incorrectly critical of the president’s negotiation of new trade agreements.
It’s important to note that the flow of trade can be materially impacted by tariffs imposed by one country on another country. Fees are set at a rate that artificially makes domestic products more competitive with imported goods. A $20,000 automobile exported to another country may be subjected to a 10% tariff or $2,000. The price of the vehicle accordingly will increase to $22,000 to consumers. This could greatly improve the sales of similar vehicles manufactured domestically.
There are other types of nontariff barriers to exports. They include foreign companies stealing patents, subsidies afforded to state-owned enterprises (exporting countries may provide financial aid to enable domestic companies to compete with exporters) and currency manipulation. In the latter a country may drive down its currency so its exports are more competitive abroad. The Chinese are notorious for all of these predatory practices.
The Council of Economic Advisors has indicted that the average American tariff is 3.5%, while the average European tariff is 5%, China is nearly 10% and the world average is about 10%. A zero world tariff would afford American exporters a significant advantage. The derivative benefit is that US companies would increase exports, which would positively impact employment in the US.
The greatest impediment to zero tariffs is China. As mentioned earlier, it wields the highest tariff rates and uses other types of nontariff devices to give its domestic companies an unfair competitive edge.
Some have criticized the efforts of Trump against China. They should keep in mind that China sold $505 billion of goods to the US, and the US sold $129 billion to China, in 2017. The US has a distinct advantage in a trade war because it can impose tariffs on far more of Chinese exports to the US than US exports to China.
Trump should continue to be very aggressive in his negotiations with China. A short-term trade conflict in the short run could yield very great benefits in the long run.