At the G-7 summit in Canada, President Trump sent deeply mixed signals about his goals for U.S trade with other nations. He persisted in his defense of tariffs on imported goods, but at the same time, he called for the complete elimination of all trade barriers among the G-7 members.
President Trump’s overall goal appears to be the enrichment of the United States, but he both misunderstands the trade balance and ignores the array of data in favor of open trade. Erecting our own tariffs and quotas, insulting our allies, and refusing to engage in international cooperation will result in more trade barriers, not less, and ultimately a poorer country.
If the administration’s goal is to lower trade barriers facing the United States, increasing U.S. tariffs is not a good negotiating strategy. Recent history demonstrates that trade threats are met with more trade threats, not improved trade, that only hurt American consumers and producers.
Earlier this year, President Trump imposed a broad 25 percent tariff on steel and a 10 percent tariff on aluminum to safeguard national security. He later revealed that they were not for national security purposes at all, but in response to current trade barriers facing U.S. exports.
This action was met with immediate backlash, as the total retaliation against the United States will now impact nearly $40 billion of U.S. exports, including retaliatory tariffs from Canada, Mexico, and the European Union on approximately $19 billion of U.S. goods.
Similarly, China announced plans to retaliate on $53 billion of U.S. exports after the United States imposed national security tariffs on Chinese steel and aluminum as well as additional tariffs in response to Chinese intellectual property theft. By specifically retaliating against U.S. agricultural exports, such as soybeans, China intentionally targeted products that would have the largest impact in the United States.
These escalating tariffs are both increasing global tensions and harming the U.S. economy. The American Action Forum estimates that U.S. tariffs on steel and aluminum could increase nationwide consumer costs by $7.5 billion a year, and additional tariffs on China could increase costs by $11.5 billion annually. Another study found that tariffs and quotas on steel and aluminum, coupled with retaliation from eight U.S. trading partners, will reduce U.S. gross domestic product by $37 billion a year and result in a net decrease of more than 402,400 jobs.
A better strategy for improving and increasing U.S. trade and prosperity would be to enter into trade agreements with our allies that lower tariffs and quotas, build international cooperation, and have built-in mechanisms for enforcing trade rules and settling disputes.
One example of this was the Trans Pacific Partnership, a multilateral trade agreement from which President Trump withdrew in his first week in office. It was designed to eliminate 99 percent of tariffs between the United States, Japan, and 10 other Pacific nations. Estimates suggest that this would have increased annual income in the United States by $131 billion annually and increase exports by $357 billion a year.
The administration now has another opportunity to lower trade barriers for the United States through renegotiation of the North American Free Trade Agreement. As history has shown, the way to do this is not by increasing tariffs on Canada and Mexico, nor is it by insisting on unreasonable provisions such as restrictive rules of origin or sunset clauses. The only way to lower trade barriers is through international cooperation that benefits both sides and allows for unrestricted growth.
As should now be expected, President Trump took to Twitter after the G-7 summit to criticize the trading system and blame other nations for the U.S. trade deficit. This rhetoric is harmful and suggests a fundamental misunderstanding of bilateral trade deficits and the macroeconomic factors that influence a nation’s balance of trade.
It has also inspired outcries from global leaders, who pledge to stand together against the protectionist actions of the United States. President Trump’s words, and even more so his actions, are doing nothing to bring the United States closer to his goals of free trade and greater prosperity, and likely only place them further out of reach.
