Published: Tuesday, May 21, 2024
WASHINGTON – As president Donald Trump imposed a 25 percent tariff on steel imported from abroad, which was bad for Clips & Clamps Industries of Michigan, a Michigan supplier to the auto industry. It increased its material prices, made it more difficult to compete with rivals overseas, and cost it several contracts.
Jeff Aznavorian thought that he would be relieved when Joe Biden became the president of the White House. Biden, however, largely maintained Trump’s tariffs – on steel, aluminium and a large number of Chinese goods.
Aznavorian said that it was surprising to see a different administration, with a different ideology, maintain the same policies. He recalled how Bill Clinton, a former Democratic president, fought for a freer market. “That is so different than a Biden administration in 2024.”
Trump and Biden have little in common, whether it’s taxes or climate change or immigration and regulation. On trade policy, however, both presumptive nominees for president have adopted surprisingly similar approaches. This means that, whether Biden or Trump win the presidency the United States appears poised to maintain its protectionist trade policies — a policy which experts say could fuel inflation pressures.
Biden, last week, announced new tariffs on Chinese electric cars, advanced batteries and solar cells, among other products. He said that these would prevent Beijing from flooding America with cheap imports.
Both candidates are embracing a protectionist stance, reflecting the widely held belief that opening up the country to more imports, especially from China, has resulted in the loss of American manufacturing jobs and the closing of factories. The Midwestern industrial states are likely to decide who will win the White House.
William Reinsch, former trade official and now with the Center for Strategic and International Studies, said, “If you look, it’s clear.” “Where are these deciding states?” You can clearly see the importance of trade in Pennsylvania, Michigan and Wisconsin.
Both candidates, in their own way, have abandoned the U.S. commitment towards relatively frictionless trade – low barriers and minimal government interference – that was a cornerstone of American policy after World War II. Free trade was supposed to lower costs and benefit consumers and businesses around the world.
Recent years have seen a growing perception that free trade benefits companies and households, but hurts workers. American jobs are being replaced by cheaper foreign labor.
In his book “No Trade Is Free”, published in 2023, Robert Lighthizer, Trump’s chief trade negotiator and former White House trade representative, declared that “the once almost unanimous Washington consensus” on free trade was dead.
Trade protectionism has its own price, just as free trade does. The cost of trade protectionism can be higher for businesses and households, just when the country is trying to control inflation. It is often used to support inefficient businesses. Other nations retaliate against American exporters. It can also deteriorate relations with both allies and enemies.
Trump, who proclaimed himself as “Tariff Man,” tried to slap import taxes on America’s trading partners, promising to shrink America’s trade deficits with China, in particular.
He did press Mexico and Canada to rewrite a North American Trade Deal that Trump claimed had destroyed U.S. Manufacturing Jobs. He also convinced China to agree that they would buy more American farm products. His efforts did not revive the manufacturing sector – factory jobs are a smaller percentage of U.S. job creation than before his presidency – or reduce America’s trade surpluses.
Trump has promised to do more of the exact same thing in his second term. He has threatened to impose a tariff of 10% on all imports, and a tax of 60% on Chinese products.
In an interview with Time magazine, Trump stated: “I call it the ring around America.”
Mark Zandi warns of the damaging consequences. Zandi stated that Trump’s tariff plans “would spark increased inflation, reduce GDP, jobs, and increase unemployment all other things being equal.”
Zandi estimates that average consumer prices will be 0.7 percentage point higher than normal a year after import taxes are imposed. Kimberly Clausing, Mary Lovely, and the Peterson Institute for International Economics released a report on Monday that estimated the tariffs would be a tax equivalent to at least $1700 per year for middle-class families in the United States.
Biden, for his part is in favor of subsidizing key industries such as chipmaking and electric vehicle manufacturing to give them an edge. This stance reflects a concern that China’s growing military and technical might could threaten the national security of America. Last week’s announcement proved that Biden doesn’t mind new tariffs either. Katherine Tai, his top trade negotiator has launched an investigation into Chinese shipbuilding practices, which is likely a precursor to further sanctions against Beijing.
Elizabeth Baltzan is a senior advisor to Tai. She said, “The laissez faire economic model of trading wasn’t working well for the United States.” “We are trying to fix that.” You may be accused of protectionism if you adopt measures to make the economy fairer. You have to ask yourself what you are protecting, namely working-class communities.
Dani Rodrik is a Harvard economist and early critic of globalization in the 1990s. He views Biden’s trade policies as more favorable than Trump’s.
Rodrik stated that Trump’s trade restrictions against China were incoherent and impulsive. There is little evidence to suggest they did anything good for workers or middle-class Americans .,”.
He said that, in contrast, “Biden’s approach is strategic, and based upon rebuilding U.S. Manufacturing capacity and investing into the green transformation, fundamentally strengthening the U.S. Economy rather than crass protectionism.”
In recent years, there has been a growing consensus that the U.S.’s trade policy must change. Critics say that moving factories to low-wage nations like Mexico and China during the 1990s and 2000s boosted corporate profits, enriched investors and executives, but destroyed American factory towns, which couldn’t compete against cheap imports.
In a paper published in 2016, David Autor, an economist at Massachusetts Institute of Technology and two of his colleagues concluded that between 1999 and 2011, cheap Chinese imports destroyed 2.4 million American job opportunities.
China has recently become America’s No. The rise of China as America’s No.
Although this policy shift may have begun with Trump, the dissatisfaction with free trade and a China that was becoming more combative had been building over years. Trump’s very first act as president was to cancel a free-trade agreement that the Obama administration had negotiated between 11 Pacific Rim nations.
Trump then really got started. He taxed foreign solar panels and washing machines. He then labelled steel and aluminum imports as a threat to the national security, and imposed tariffs on them.
Finaly, he launched perhaps the largest trade war since 1930: he slapped tariffs on $360 billion worth of Chinese goods to punish Beijing for its illicit efforts, such as cybertheft, to overtake the U.S. in terms of technological superiority. China retaliated with its own retaliatory taxation: it targeted American farmers in particular to hurt Trump’s constituency.
What has Trump’s tariff warfare achieved?
Autor and his colleagues from the University of Zurich and Harvard, as well as the World Bank, concluded in a study that Trump’s import tax failed to achieve its goal of returning jobs to the American Heartland. The study concluded that the tariffs “neither increased nor decreased U.S. jobs” in areas where they were meant to protect jobs.
The retaliatory taxation by China and others on U.S. products had “negative employment effects”, especially for farmers. The billions of dollars in government assistance that Trump gave to farmers was only a partial offset.
Trump’s tariffs hurt companies that depended on the supplies affected by tariffs. In Plymouth, Michigan, Clips & Clamps doesn’t even use much imported steel. Tariffs hurt the company because they raised prices for American steel producers.
Aznavorian stated that “our raw material prices in the United States are usually 20% higher than Europe, Mexico, and China and 40%-60% higher than China.” He said that his overseas competitors enjoy “significantly lower” costs.
Trump’s trade policy may have failed as a policy, but it has succeeded in politics. The study by the Autor found that Trump’s support and Republican candidates for Congress increased in areas most affected by the import tariffs – the industrial Midwest, and manufacturing-heavy Southern States like North Carolina and Tennessee.
Biden, after assuming office, continued many of Trump’s policies on trade and did not make any effort to revive Obama’s old Pacific Rim Trade Pact. He maintained Trump’s tariffs on steel and aluminum, but allowed some trading partners to avoid them until they met a quota. He also kept China tariffs. Biden went further by limiting Beijing’s access to computer chips, and equipment used to manufacture them.
Reinsch stated that “trade and national security are now combined into one”. This is the first time that we have faced an opponent who posed an economic as well as a security threat. The Soviet Union posed a security threat, but never an economic one. In the 1980s, Japan was a security and economic threat. China is both and it has been difficult to determine how to handle that.
Peterson’s Lovely said that Biden’s China policy is “rooted in national security.” It is difficult to criticize because national security has always been a black box, which only the highest-level security clearance holders can see.
Biden’s administration has angered some U.S. ally by offering subsidies in order to encourage U.S. firms to manufacture goods here. Biden’s Inflation Reduction 2022 Act allows auto buyers to receive a $7.500 tax credit when purchasing an electric car. The credit is only available for EVs that are assembled in North America. The full credit is only given to EVs that have at least 60% battery parts made in North America, and 50% of “critical minerals” used in the car — such as cobalt and copper — coming from the United States.
Wendy Cutler is vice president at the Asia Society Policy Institute and a former U.S. Trade Negotiator. It’s crucial that the U.S. doesn’t become too dependent on China’s strategic products, especially as trade becomes more weaponized.
Biden’s initiatives, including incentives for green technology and computer chip production in the United States, have led to what appears to be a surge in investment in manufacturing. Karen Dynan, of the Peterson Institute, reported that the investment in U.S. manufacturing increased at an 80% rate annually in January-March compared to the last three months of 2023. This helped fuel the unexpectedly strong performance of the economy.
The United States is unlikely to change its stance on protectionism any time soon. China is exporting its way out of its economic problems, threatening to flood the world market with cheap EVs, and other products.
Aznavorian hopes that the U.S. can mend its trade relations with allies.
He said, “We need friendly trading partners to compete with China.”
Aznavorian is convinced that trade protectionist policies will “definitely” continue to be used against China and other U.S. enemies.