The First Steps Toward a Trade Nightmare

Yesterday, the Trump administration announced the imposition of steep punitive tariffs on specific materials manufactured abroad and imported into the United States, particularly on solar products from China and washing machines from South Korea. This was a terrible error by the administration and does not bode well for the extremely important next few weeks, which will largely determine the course of American economics and trade for the coming decade or longer.

I want to be clear about my opinion about trade in general. I am unabashedly for unfettered free trade between nations, based on negotiated bilateral or multilateral agreements that establish clear, fair, and enforceable rules of the road. I am for global organizations like the World Trade Organization (WTO) that govern the worldwide trading regime, prohibiting extreme tariffs, subsidies, or protectionist policies and adjudicating disputes between trading partners. I firmly believe that nations should find their economic niches, specialize in those industries or sectors, and work to make their country the best in the world at that specific good, service, or resource; this specialization will reduce global prices, allow capital flows to become more efficient, and help nations develop at a faster pace. I do, however, understand that certain industries or sectors will need to be replicated in each nation, as these sectors are not easily transferable across countries (healthcare, education) or are important for policies like national defense (steel, aerospace). Still, barriers to entry should be lowered as much as possible to enhance competition and thus aid consumers.

Robert Lighthizer
US Trade Representative Robert Lighthizer.     Image Credit: Wikipedia

It is due to these views and other reasons that I am so deeply against the trade actions which the Trump administration undertook yesterday. Neither solar products nor washing machines are important for national defense or are required to be done in the US, like healthcare, so those rationales are out. I also do not think that the Trump team believes the US will suddenly become global specialists in washing machines or solar products, so that rationale (one I would still likely disagree with, as our industries should be able to stand on their own) is also not applicable here. So why did the administration slap these harsh tariffs on Chinese and Korean goods? The reasoning of the White House, as laid out by the New York Times, is that American companies impacted by the cheaper Chinese and Korean goods asked for the protectionist assistance. Whirlpool Inc., a major American appliance manufacturer, wanted protection from competitive (and to be perfectly honest, better) South Korean imports from companies like Samsung and LG, while multiple solar companies (who manufacture in the US, but are actually foreign firms) said imports of cheaper Chinese solar cells and panels was threatening their businesses. The fact that a US President, of the Republican Party, is choosing to pick winners & losers in the American market is just flabbergasting to me, as that has been antithetical to that party’s economic message for as long as I’ve lived on this earth. In fact, one of the reasons that I was first drawn to the Republican Party (I was initially a registered Republican and now am an Independent) was their more market-oriented stance and free trade policies. To see this complete repudiation of one of the conservative movement’s driving principles by someone purporting to represent that movement in the Oval Office is both sad and frustrating, even though I do not consider myself a conservative.

Seal of the Office of the US Trade Representative.      Image Credit: Wikipedia

Besides those intellectual and theoretical reasons as to why I find these tariffs absurd and completely useless, there are many practical and reasonable real-world reasons why these specific tariffs are poorly thought-out and will directly harm American interests and American citizens here in the US.

Let’s touch on the solar tariffs first, as those are more challenging to comprehend given that solar products are often not purchased directly by consumers. There have been complaints about the pricing of Chinese-made solar products for years, as China (and to a lesser extent, India) has made boosting solar manufacturing a major goal of their economic plans, wanting to become the primary global supplier of solar products. Some have accused the Chinese of dumping, a trade term which means pushing excess goods into another nation at prices that are so low they push domestic manufacturers out of business. This may be true, but it is something to be settled at the WTO, where there are courts which adjudicate disputes over dumping. If American-made solar products are too expensive and are of similar, not better, quality, Americans should buy the cheaper Chinese products. These tariffs, which range from 15 – 30% over 4 years, are high and will likely heavily impact the booming solar industry, which is an area of employment growth, especially among blue-collar workers. Consumers do not often purchase the products subject to tariff, but companies installing solar panels in customers’ homes do, and those are the businesses which hire the installers. One estimate by an American industry group expects that these tariffs will cost 23,000 American workers their jobs. Large-scale solar farms, which compete with other electricity generation plants that are driven by fossil fuels, will also be negatively impacted, as they use a great number of solar panels now under tariff. The move may drive some manufacturing to the US, but it will more likely push consumers to other, cheaper forms of energy during the period of the tariff.

Washing Machines
Appliance companies involved in the tariff dispute: Samsung, LG, Whirlpool.       Image Credit: Yonhap News

The washing machine tariffs are even more ridiculous, as they target an ally, South Korea, which is currently under severe military pressure from both North Korea and the United States. The Trump administration is slapping Korean washing machines with a 20 – 50% (!) tariff, while also attempting to renegotiate the Korean/US free trade agreement, KORUS. There is no need to antagonize a solid ally when we so desperately need to be on the same page whilst confronting the issue of North Korea. Beyond that, the American washing machine industry is not critical to American security or national interests and if Whirlpool cannot compete with the better quality machines coming out of South Korea, it should not be propped up by American consumers who wish to purchase foreign goods. South Korea has already clearly stated that they plan to open a complaint with the WTO, one which the US stands a good chance of losing. If we should choose not to comply with a WTO decision that is not in our favor, that would set a poor negative precedent that we should be careful to avoid.

As I stated in the beginning of this piece, these punitive tariffs are the first step in what could become an American trade nightmare, as the coming weeks are likely the most important when it comes to trade in recent history. Within the next few weeks, the Trump administration will probably impose even stricter punitive tariffs on Chinese steel (possibly more justified than these tariffs), will enter the penultimate round of NAFTA renegotiations, will continue talks over the future of KORUS, and even possibly wishes to reopen discussions about China’s membership in the WTO (which would be an utter debacle). If the tariffs imposed by the administration this week were any indication, we are in for a hell of a ride when it comes to the future of American trade with the rest of the world. I would expect harsh negotiations in Montreal with Mexico and Canada over the future of NAFTA, which I think could very well end with the decimation of that agreement by the US. I do not expect KORUS negotiations to proceed any better, as in both NAFTA and KORUS talks the US wishes to move the other parties while not offering anything in return. That’s not generally how successful negotiations proceed.

NAFTA Negotiations
NAFTA negotiators from Mexico (L), Canada (C), and the US (R).     Image Credit: National Observer

I’m strongly hoping that these tariffs are a one-off policy pushed by a certain branch of the Trump administration that is anti-trade and isolationist. Unfortunately for me, and I increasingly think all Americans, I believe that this anti-trade stance resonates far more deeply within the White House and the Office of the Trade Representative. Whether these tariffs survive in the long term will likely relate directly to whether agreements like KORUS, NAFTA, and our integration with the WTO remain solid, or whether the Trump team takes an axe to them as well. I can only hope that the roots of trade, so deeply entwined with American history, are strong enough to survive this assault.

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