Prosperity in Peril

Foreign trade is getting a bad rap these days here and overseas. GOP presidential candidates are talking tough on the subject, while Democrats follow the unions’ protectionist predilections. Former President Donald Trump has proposed imposing a 10% tariff on everything the U.S. imports and slapping even higher tariffs on goods made in countries that engage in alleged currency manipulation or unfair trade practices. A tariff is a sales tax, pure and simple.

When the U.S. places a tariff on an import, it’s imposing a sales tax. A 10% import sales tax would cost Americans more than $300 billion. Ouch!

You’d never know it from what politicians say, but foreign trade makes us stronger, not weaker. Unfortunately, China’s growing aggression is stoking protectionists’ fears, leading U.S. policymakers and politicians to shun deals that would reduce barriers with other countries and regions.

Both the U.S. and Britain would benefit enormously from a free trade agreement, yet after encouraging noises, President Biden is backing off. Nor is the U.S. pursuing a deal with Asia-­Pacific nations, which would lessen China’s ­gro­wing economic power in the region.

Free trade has fewer defenders these days than free speech. And here is what’s so sobering and worrying: Growing protectionism could lead to an unintended tragedy, just as it did before World War II.

What triggered the Great Depression was the U.S.’ passage of the Smoot-Hawley Tariff Act, which raised taxes on a mindnumbing array of products and set off a global trade war that eviscerated trade. This was followed by other economic idiocies, such as sharply raising taxes. The Depression created the conditions for the Nazi ascent in Germany, which, in turn, brought on the Second World War. With that horror in mind, Allied policy­makers after the war put the Free World on the road to reducing tariffs. Let’s get one profound fact clear: The vast growth in international trade since WWII has been crucial to the enormous increase in living standards since that catastrophe. We’d all be ­significantly poorer without it. For instance, what enabled the initial cellphone to become the handheld supercomputer we take for granted ­today were the intricate international supply chains that grew as trade barriers receded. The complaints about trade don’t hold up.

A trade deficit is not the equivalent of a company’s losing money. It is a meaningless ­measure of a country’s economic health and in our case ignores the flow of investment money into the U.S. America routinely incurred trade deficits as we became the mightiest nation in history.

As for manufacturing, what hurt that sector was a torrent of largely unnecessary government regulations. The easing of this abuse under President Trump helped that part of the economy ­improve significantly.

China accounts for 11% of our international trade. Surely our politicians can separate trade policies with Beijing from those with most of the rest of the world. And, by the way, putting tariffs on imports from such Asian countries as South Korea will make them more dependent on China.

Steve Forbes
Forbes USA

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