Every time I hear President Donald Trump articulate — maybe “ramble on about” would be a more apt description — his theory of trade, I want to scream.
Why? Because it makes absolutely no sense. He insists that China pays the tariffs on its exports to the U.S. when it’s U.S. businesses and consumers (mostly) who bear the cost.
For some reason, reporters refuse to follow up on Trump’s outlandish assertions in interviews or at impromptu press gaggles. So I have taken it upon myself to play that role and ask Trump the tough questions about trade, the one subject on which he has been curiously consistent for over 30 years.
CB: Mr. President, you said in a tweet on Sunday that “For 10 months, China has been paying Tariffs to the USA;” that “we have billions of dollars coming into our Treasury — billions — from China” as a result of the tariffs on Chinese imports. Can you explain how that works exactly?
DJT: “The U.S. has been losing $800 billion — not million, billion — a year on trade. We’ve been paying China $500 billion a year for many, many years. It’s a disgrace. Previous administrations let China rip us off. That stopped with Donald Trump.”
CB: Why is buying something you want from someone else at a mutually agreed-upon price “losing?” No one is challenging the notion that China engages in unfair trade practices, but neither is anyone putting a gun to our heads and forcing us to buy stuff from China.
DJT: “We’re charging China tariffs. We’ve never taken in 10 cents from China. Not 10 cents. And now we’re taking in billions and billions of dollars.”
CB: Not exactly. Your tariffs, which as of Friday amount to 25% on $250 billion of Chinese goods and a proposed 25% levy on an additional $300 billion, did increase customs duties flowing into the Treasury. But the U.S. was collecting custom duties on Chinese and other imports before you came along: about $12.3 billion a year, on average, from 2007 to 2016.
In the first six months of fiscal 2019 — from October 2018 through March 2019 — customs duties totaled $34.7 billion compared with $18.4 billion in the year-earlier period. The Treasury expects to receive $69.5 billion in customs duties for the full fiscal year 2019. So yes, customs duties have increased. But you still haven’t explained how China is paying the tariffs.
DJT: “NO COLLUSION! NO OBSTRUCTION!”
CB: Can we please stick to trade? Even your top economic adviser, Larry Kudlow, conceded on Fox News Sunday that China doesn’t pay the tariffs. Is Larry going to be targeted for export?
DJT: “The tariff payments go directly to the U.S. Treasury.”
CB: But they don’t come from China! That’s the point.
Let’s try this again. China receives money — dollars — for the goods it sells to the U.S. It isn’t paying anybody anything.
When goods enter the U.S. from China, the importer — usually a middleman — has to fork over the tariffs, or customs duties, to the Treasury within a matter of days. From there, the importer has some options. He can pass along the full amount of the tariff to his customers. He can eat some of the increased cost, lowering his profit margin. He can try to negotiate a better price with the exporter. Or he can find alternate sources — i.e. other countries — for the goods. In the last two instances, China may suffer, as Kudlow suggested. Only in the third one does China bear the cost of the tariff.
DJT: “Tariffs can be completely avoided if you buy from a non-Tariffed country, or you buy the product inside the USA (best idea). Americans can produce incredible goods for American consumers and the rest of the world. U.S. consumers don’t pay more if we don’t buy from China.”
CB: But we do buy from China! There is a demand for Chinese goods at the prices they charge. I guess you could always slap 100% tariffs on China’s imports and make the bilateral trade deficit disappear. But China isn’t sitting still. China announced Monday that it plans to raise tariffs on $60 billion of American imports starting June 1.
DJT: “Look at all the manufacturing jobs that have been pouring back into this country since I became president! There is absolutely no rush to make a trade deal with China. We’ll see what happens. President Xi Jinping and I have a special relationship. He wrote me a very beautiful letter, which I’m framing and mounting in the Oval Office next to the very beautiful letter I received from North Korean President Kim Jong Un.”
CB: And what about “my farmers,” as you affectionately refer to them? China has already retaliated by placing tariffs on almost all U.S. agricultural and food imports from the U.S. China went from the No. 1 export market for U.S. agricultural products in fiscal 2017 to third in fiscal 2018 to an expected fifth in fiscal 2019. Have you talked with soybean farmers recently? Soybean prices just hit a 10-year low.
DJT: “My farmers love me. I’m taking care of my Great Patriot Farmers with $12 billion in direct aid. And we’re going to use all of the revenue pouring into the Treasury to buy more of their crops than China ever did.”
CB: I presume you’ve heard of “mercantilism,” the idea that nations can export their way to prosperity? It has never made any sense to me. Why use a nation’s scarce resources to produce goods for other countries? It sure doesn’t sound like “America First.”
DJT: “The GDP rose 3.2% in the first quarter. The unemployment rate is at a 50-year low. We have the best economy in history. Tariffs are a great way to make countries stop taking advantage of us. China will be hurt very badly if it doesn’t make a deal because companies will be forced to leave China for other countries.”
CB: So if I understand you correctly, your theory of trade goes something like this: Trade wars are good — and easy to win — because they hurt U.S. farmers (lost exports), U.S. businesses (higher prices for imports of raw and intermediate materials), U.S. consumers (higher finished goods prices), and the U.S. government (support payments for farmers).
No wonder the stock market is giving the latest escalation in the trade war the thumbs down. Good luck at the G-20 summit next month, Mr. President. It’s been a pleasure chatting with you.
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