Trump Calls for Eye-to-Eye Tariffs, Huge Trade War No Matter Who Wins

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by Mike Shedlock

Trump and Biden are in ever-escalating tariffs proposals. Let’s discuss Trump’s latest proposal and why It’s a trade war we cannot win.

Trump Is Primed for a Trade War in a Second Term

The Wall Street Journal reports Trump Is Primed for a Trade War in a Second Term, Calling for ‘Eye-for-Eye’ Tariffs

Trump, who has referred to himself as “Tariff Man,” has been stocking an arsenal of protectionist measures for a potential second term, filled primarily with new levies on imports from China and elsewhere.

In campaign documents and media interviews, Trump has floated placing a tariff of 10% on all imported goods and matching tariffs on trading partners with higher rates “an eye for an eye, a tariff for a tariff.” He wants to revoke normal trading relations with China, a legal step that would automatically raise levies on everything from toys and aircraft to industrial materials.

If implemented, such Trump policies would jolt the U.S.’s economy and international relations, according to trade analysts. New tariffs would fuel tensions with China and upset allies, inviting retaliation. While some American industries would be shielded from foreign competition, others would face higher costs for imported materials. Inflation, quiescent in Trump’s presidency but higher in recent years, is likely to surge anew.

Of all his proposals, Trump’s universal 10% tariff, while lacking details, has attracted the most attention from business lobbies and foreign officials.

“I think we should have a ring around the collar,” Trump said in an interview with Larry Kudlow, a Trump economic adviser in term one, on Fox Business in August. “When companies come in and they dump their products in the United States, they should pay, automatically, let’s say a 10% tax.”

Biden Administration Explores Raising Tariffs on Chinese EVs

China already faces 20 percent tariffs on EVs, and Biden Explores Raising Them.

Biden administration officials, long divided over trade policy, have left in place Trump-era tariffs on roughly $300 billion of Chinese goods. But officials at the White House and other agencies are debating the levies again, the people said, with an eye on wrapping up a long-running review of the tariffs early next year.

Chinese EVs are already subject to a 25% tariff, which has helped prevent subsidized Chinese automakers from making inroads into the U.S. market.

Other targets for potential tariff-rate increases are Chinese solar products and EV battery packs, the people said. While the U.S. now primarily imports solar material from Southeast Asian countries, China is still an important supplier of EV batteries.

Raising some tariffs could allow President Biden to signal he is tough on China as he approaches a 2024 re-election campaign that could again see him face Donald Trump.

Toe-to-Toe Who’s More Stupid?

Since tariffs are a tax on consumers, Trump is proposing a huge tax hike.

Sadly, it’s not just Trump. China will retaliate and so will Europe. Costs will soar across the board.

And the stupidest thing about this is that it is counterproductive to Biden’s climate goals.

Assume China is unfairly subsidizing solar panels or anything else. What that means in practice is China is subsidizing US consumers at the expense of Chinese consumers.

Yet we bitch about that, like candlemakers bitching about the free light of the sun.

Bastiat’s Candlestick Makers’ Petition

What’s happening now is very much like French economist Claude-Frédéric Bastiat’s famous Candlestick Makers’ Petition written in 1845. His petition was sarcastic.

Bastiat said that sunlight was unfair to the candlemakers. He proposed a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds in which the light of the sun would enter houses.

Banning sunlight would increase the need for more oil from whales to make lamps. There would be more whaling jobs and more candle making jobs too.

Solar Panels a Perfect Modern Example

For some of the same reasons and one different one, the Biden administration and the Trump administration both want solar panels to be made here.

The result is we do not use them on roofs and other places to the extent we could because they are too expensive.

Made in the USA effectively means made nowhere (a relative statement not an absolute one).

Along with the solar panels not made here or there, we are killing part of our own climate push, and one that actually makes some sense.

In the process, we are also losing out on specialized roofers to install the tiles, batteries needed to store the energy etc.

Oranges and the Sun

In his petition, Bastiat wrote about oranges and the sun.

If an orange from Lisbon sells for half the price of an orange from Paris, it is because the natural heat of the sun, which is, of course, free of charge, does for the former what the latter owes to artificial heating, which necessarily has to be paid for in the market.

How can French labour withstand the competition of foreign labour when the former has to do all the work, whereas the latter has to do only half, the sun taking care of the rest?

Those paragraphs apply not only to solar panels but the sugar lobby, ethanol imports, and everything else, especially cars and batteries.

Ethanol is better produced from sugar in Brazil than corn in the US, but Trump and Biden both want the ethanol produced here despite the fact it is environmentally damaging, raises the price of corn and corn-fed animals, and puts small refiners out of business.

If China offered us free solar panels we should gladly take them, but we wouldn’t. Instead, we would bitch about getting something for free.

We cannot sell our own EVs because they are too expensive. So we block China’s EVs that are much cheaper.

Whether you agree with his policy or not, Biden’s goal is to speed up conversion to EVs. Yet, he stupidly blocks imports that might do just that.

I do not know how many US consumers would buy China’s BYD, but some would.

That would translate to more demand for EV chargers and more EV-related infrastructure at a faster pace. There would be more EVs on the road and more curiosity about them.

It would literally speed up everything EV related.

But, the UAW does not want that, Biden does not want that, Trump does not want that, Republicans don’t want that, and Democrats don’t want that.

Fair Trade and Fair Share go together.

It’s only fair to US unions if everything is made here. Otherwise the candlemaker’s union known today as the UAW will bitch about it. And Biden is on the picket line demanding it.

Tariffs are one thing that Republicans and Democrats, agree on. It’s economic madness.

It’s Not Easy to Avoid Buying Items Made or Sourced in China

Do you look for US-made or something not made in China? It’s harder than you think because the labels don’t tell you what you need to know.

Please note It’s Not Easy to Avoid Buying Items Made or Sourced in China

The problem with thinking we are making any headway at all reducing our trade deficit with China is that trade is not bilateral.

Items stamped “made in Mexico” or Vietnam or many other places have parts and materials made in China.

To avoid US tariffs, China sends parts and materials to other countries. As long as no more than 49 percent comes from China, it can be stamped “Not Made in China” satisfying those who want something else. This is further subject to the added benefit attributed to assembly of parts made in China but assembled elsewhere.

China is responsible for producing or refining up to 90 percent of rare earth minerals. They go in nearly everything important that you buy.

If you want something totally not made in China and with no materials produced or refined in China, good luck finding it.

China’s Share of Battery Chain

That’s just battery chain supplies.

Critical Materials Risk Assessment by the US Department of Energy

 

Rare earth elements go into weapons guidance systems, batteries, wind turbines, cell phones, flat-screen TVs, magnets, mercury-vapor lights, and camera lenses.

The US is heavily dependent on China for nearly everything in that red critical square. I list the percentages by element.

Check it out.

So, how might China retaliate?

I discussed how on May 20, 2019: Trade Hardball: China Threatens to Cut Off US Supply of Rare Earth Elements

We have known about this problem for at least a decade. But are no closer to a solution today. Environmental groups fight every attempt to open up a mine here because they environmentally very dirty.

We are more dependent on China than ever. On those grounds alone, let alone the stupidy of tax hikes ought to get us to think. But it hasn’t and apparently won’t.

 

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