The simple-minded, sound-byte news coverage of the tariffs on China just makes me want to scream. “Trump lied! China isn’t paying for the tariffs! American consumers are going to pay! It’s going to cost every household $1,000 per year in higher prices! A million jobs will be lost! China will retaliate with tariffs on American imports! American farmers are getting killed by the loss of exports to China!”
I could go on. The list of ways in which the sky is falling is endless as every business failure or challenge is now blamed on the tariffs on China.
The problem with the warnings that I’ve singled out above is that there is some truth to all of it – but only a half-truth. Less than half, actually. But the media sees an opportunity to stir up Trump hysteria, and hysteria always stirs more interest than factual, balanced reporting. It’s the very reason that the evening news on every channel begins with a frantic proclamation of “BREAKING NEWS!!!” delivered breathlessly by a news anchor in a tone of voice that sounds like he/she just stopped in to the studio while fleeing the apocalypse to warn us all to run for our lives. Then you find out it’s not breaking news at all, but some damn thing that happened earlier in the day – something of little significance to 99.9% of the viewing audience – that some reporter just found a new little twist on the story. And so it is with the story about the tariffs on China.
So I’m here to lend some balance to the tariff story. Let’s take the above claims one-by-one.
- “Trump lied! China isn’t paying for the tariffs! Etc.” Maybe he did mislead us a bit with this one, as it actually is the importer that will pay the tariff, not the Chinese exporter. However, in some cases, those are one and the same, since Chinese exporters have set up importing companies in the U.S. Regardless, China will pay in a big way and China will be hurt badly, much worse than the U.S. Chinese companies will be pressured to cut their prices to offset the tariffs paid by the importers, and they will, in many cases perhaps offsetting the entire tariff. They may actually sell their products below cost, wiping out all profit for the Chinese company and all revenue that the Chinese government would have collected. Chinese exports will fall dramatically as American companies find new, cheaper sources for their products. Unemployment and civil unrest in China will rise. China’s ability to fund its military expansion will be badly crippled.
- “American consumers are going to pay … $1,000 per year in higher prices!” Yeah. No one has ever denied that. But what’s missing here is the fact that someone is going to give you $2,000 per year – maybe more – to cover it. Who’s going to do that? Your employer. If not your current employer, your new employer – the one who just built a factory in your town to make some product that’s now too expensive to be imported from China. Uncle Sam will be chipping in too. Now that he’s collecting revenue from importers – that is, from people who still insist on buying the now-expensive Chinese imports, he has room to cut your income taxes without blowing up the federal budget. Don’t like paying the tariff on the import? Then don’t. Buy the cheaper American-made alternative.
- “A million jobs will be lost!” This one isn’t even a half-truth. It’s an outright lie perpetrated by globalist economists who don’t like American efforts to restore a balance of trade. They arrive at this figure by assuming that consumers won’t be able to afford the higher prices and will stop spending, forcing retailers to lay off workers throughout the supply chain – shipyard workers, truck drivers, warehouse workers, people stocking shelves and working cash registers. They hope it won’t dawn on you that people will immediately seek out cheaper alternatives and will quickly find them in new products provided by new companies and entrepreneurs who have seized on the opportunity. Truth be told, if the trade deficit with China were completely eliminated, as it will be if both sides escalate their tariffs higher and higher, the U.S. would add several million manufacturing jobs to its economy, not to mention the jobs involved in building that manufacturing capacity.
- “China will retaliate with tariffs on American imports!” Maybe, but not if they’re smart. Don’t forget that the real prize here to restore a balance of trade with China. Any combination of imports and exports that gets us to that point yields the same positive benefit for the American economy. If China wants to choke off U.S. exports altogether, then we can achieve a balance of trade by completely choking off Chinese imports. We’re still the big winner and China will be an even bigger loser.
- “American farmers are getting killed … !” Hogwash. While farmers’ exports to China may be taking a hit, the free-trade globalists don’t want you to know that farmers are more than making up for it by increased exports to other countries. It’s easy to verify this for yourself. Just look at the trade report published monthly by the Commerce Department. Farm exports (including the much-publicized soybeans) were actually up in 2018 and year-to-date in 2019 are running ahead of 2018 exports. I also read a story that blamed the demise of family farms on the China tariffs. More hogwash. Family farms have been vanishing for decades, unable to compete with the huge corporate farms that are swallowing them up.
Higher prices that are more than offset by higher wages are a good thing, not a bad thing. That’s the very mechanism that has enabled our standard of living to advance. We all pay higher prices for every product than we did in the past, but we have a higher standard of living because the demand for labor has driven our wages higher. “Wages aren’t higher today,” you may say. Yeah, and why is that? It’s because of our huge trade imbalance, the very thing Trump is tackling with these tariffs.
If all Americans understood the truth about trade and the damage that huge trade deficits do to an economy, we’d all be cheering for Trump – Republicans and Democrats alike. We’ve been in a trade war for decades and have been losing badly. Finally we have someone willing to take up the fight. That’s the truth.