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Global Trade War Underway?

January 24, 2018
Plain English Version

Employees carry solar panels at a solar power plant in China. Photo Credit: Reuters

President Trump faced an old problem. Some people said some products made in foreign countries were better and cheaper than goods made in America.

The easy solution is to make better and cheaper products in this country. That part is not so easy. America is a mature economy. Its equipment may be older. Its workers earn more money. Emerging economies saw their chance. Build new factories. Hire lower paid workers. For the last thirty years, foreign companies have made fortunes doing just that.

Retailers such as Walmart sell foreign-made goods in their stores. This makes buyers happy. Even on modest wages, most things that people want are within their reach.

Who is not happy? American companies making products in the U.S. are not happy. American workers who lose jobs when their factories close are not happy.

There is an economic principle behind the idea of global free trade. It is that people are better off when the economy in every country produces the goods it can make better and cheaper than others. In recent years this principle has led to a vast increase in the incomes of workers in the newer economies.

Another principle is that of “level playing fields.” This means that the treatment of workers is fair. It means that factories are safe. It also means that governments should not help companies make their products cheaper on the international market.

The global market does work. But it is also a place where every company is seeking an advantage.

President Trump said he would take steps to level the playing field for American companies. His “tool” for doing so is to impose tariffs (or taxes) on some products made in foreign countries and sold in America. Tariffs are against products and the countries that make them.

Tariffs tend to increase the price of the items taxed. If a factory reopens workers benefit, but consumers may lose. A tariff on an item like a solar energy cell may affect a whole industry. In this case, the move toward renewable energy.

Companies do the best they can to read the fine print in tariffs and take steps to avoid them. Sometimes the strategy is to hide factories in other countries.

Trump has chosen to impose tariffs on washing machines and solar energy cells. China and South Korea are two big foreign targets producing these machines and cells.

Tariffs also invite revenge. China and South Korea will survive American-imposed tariffs. But they may retaliate. They could place tariffs on goods coming from the U.S. That may hurt American companies.

Are tariffs good or bad? It is in the eyes of the beholder. It often just boils down to politics. Trump promised tariffs. Now he is delivering. It will take some time to see if they make a difference.

Source: The New York Times January 22, 2018

 

 

 

 

 

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