The U.S. can easily win any trade war
Our Buy American Mention of the Week!
by Roger Simmermaker
March 23, 2017
Sometimes statements made decades earlier turn out to be very prophetic. Allow me to quote Alfred E. Eckes, Jr., a President Ronald Reagan appointee to the U.S. International Trade Commission in 1981 and author of the book Opening Americas Market: U.S. Foreign Trade Policy Since 1776:
"If congress, or the president, took action to aid domestic industries, the press gleefully invokes memories of Smoot-Hawley protectionism, the Great Depression, trade wars, and foreign retaliation."
Just because the United States might enter any trade war, either with Mexico or any other country, it definitely doesn't mean we stand to lose. In fact, for many reasons, the United States would easily win any trade war as long as we realize the leverage that we have as the world's most lucrative market.
And since we do have the world's most lucrative market with high wages and high living standards, everyone wants to sell to us, and there is absolutely no reason why we cannot dictate the terms of trade or access to America's market.
China uses their leverage quite well when it comes to foreign countries and companies accessing its market. As a condition for General Motors entering China's market, GM was required to set up a joint venture with a Chinese-owned Shanghai Automotive Industry Corporation (SAIC), and only owns 50 percent of the resulting Shanghai GM joint venture (American-owned GM spent $85 million to increase their holdings from 49 percent in 2011).
And guess what? China's non-tariff trade barrier to trade didn't start a trade war. The United States did and continues to do absolutely nothing. Why? Because American companies want access to China's market. U.S.-based GM evolved, just like the CEO of Toyota Akio Toyoda recently said his company would "evolve" if the U.S were to apply tariffs to autos imported from Japan.
And exactly what does "evolve" mean? It means Toyota will "adjust" to the economic policies of sovereign nations like the United States, whether it results in eating the cost of an import tariff as a cost of doing business, or moving factories and jobs to the U.S. to avoid the import tariff, etc. America surely has a large enough and lucrative enough market that any producer from any other foreign country will also "evolve" as we change or reset our own economic policies.
After all, American workers had to "evolve" or "adjust" to free trade policies that oftentimes sent their jobs overseas by finding other jobs they previously didn't necessarily want at lower pay and therefore lowering their living standards due to reduced salaries, spending their time in unemployment lines, or dropping out of the labor force altogether.
U.S.-made cars exported to China face tariffs of at least 25 percent, including American-made Cadillacs. The American-made Jeep Grand Cherokee costs $27,490 at U.S. dealerships and cost at least $85,000 in China.
Did the U.S. engage in a trade war with China over this huge Chinese import tax? Of course not. We are too busy with losing trade and foreign policies with China and other foreign countries which mirror a global game that might be called "Do you like us yet?" We will do virtually anything, including intentionally putting American workers in unemployment lines due to bad trade deals, to make other nations "like" us.
And what is the payoff to America's foreign policy and trade policy in an attempt to try to get China to "like" us? Well over $2 trillion in trade deficits with China in the last decade alone, even as China posted a worldwide trade deficit as a whole with all countries combined.
And exactly what does $2 trillion is U.S trade deficits (with China alone) mean for our national economic and financial stability? Assuming a conservative 25% tax rate on that $2 trillion dollars of forfeited U.S. economic activity, we lost $500 billion in tax revenue to our national treasury.
And what's more, considering the widely economically accepted 5-to-1 ripple-multiplier effect, a consumer dollar spent on an American-made product (as opposed to a Chinese-made product) typically recycles or ripples throughout our economy five times before it eventually goes overseas. That means the original $500 billion in lost economic activity (based on the original $2 trillion trade deficit with China) in our economy really means that we lost $2 trillion in lost revenue just through unfair trade with China, just in the last decade.
How exactly does the ripple effect work? Let's say you're going out to buy an American-made hammer (ripple number one). And you buy that hammer from a local hardware store (ripple number two). And that hardware store, seeing increased demands for their products, decides to hire a construction company to build an addition onto their store (ripple number three). Then as the construction company sees increased contacts, the owner decides to take the whole crew out to lunch at the local pizzeria (ripple number four). And on that pizza is cheese from Wisconsin (ripple number five).
Another deceptive argument of global, free trade elitists is that any trade war would ultimately engage us in an endless and losing game of Whac-A-Mole. As the theory goes, if we apply import tariffs to Chinese goods, production facilities will eventually move to Vietnam, or Bangladesh, or Cambodia.
The fallacy of this argument is several-fold. First, factories aren't built in tariff-evading countries sooner that the U.S. can react. In the time it takes to move production from China, to say, Bangladesh, the United States can easily apply the same sovereign tariff to the new country.
Second, this "Whac-A-Mole" argument never occurs in examples other than U.S. trade policy. For example, police departments are never deterred from rooting out crime in certain neighborhoods for fear that gangs will simply move to another neighborhood. The strategy is to pursue the injustice until it is eradicated.
The U.S. not continuing to "root out" unfair trade policy just like our police should not "root out" gangs in affected neighborhoods reflects a defeatist American mentality.
America doesn't need a defeatist mentality playing endless, losing games of "Do you like us yet?" with other countries. America can do whatever it wants with the huge, lucrative market that is the envy of every foreign country and producer. We hold the cards. We have the leverage. For once, let's use it.