A week ago, I posted a brief article, “Why Would Anyone Trust Trump on Trade and Tariffs? ‘BE COOL’ Is Not an Adequate Answer”. In that post, I raised serious questions about President Trump’s six corporate bankruptcies and the huge national debt increase that took place during his first presidency. I also explained that tariffs are, in fact, taxes paid by import companies (not the exporting companies nor exporting countries), and the costs of these taxes are usually passed on to consumers. In today’s post, I want to add some other issues: goals for tariffs, the negative effects of “on again / off again” tariffs, possible corruption, and explore who has benefited from unjust international trading.

Goals for Trump’s Tariffs

• One goal for Trump’s early tariff on Canadian goods was to punish that country for allowing great quantities of fentanyl to enter into the United States and contribute to drug addiction in our country. This is a bogus argument. According to U.S. Customs and Border Protection (CBP) data, only 43 pounds of fentanyl were intercepted coming from Canada into the U.S. last year. This is less than 1% of all interceptions (of which the overwhelming majority come across the U.S./Mexico border).
• A more repeated goal or motivation is to make the tariff so high that companies will move their production to the United States. They hope that by avoiding the tariff, their products will stay cheap enough to avoid a decrease in their sales. This probably won’t happen for the following reasons. Some products (like coffee or bananas) cannot be economically grown or produced in the United States. For manufacturing jobs, the cost of labor is much cheaper in some countries (China, Mexico) and this comparative advantage makes it still more economical to produce in foreign countries (even including the tariff) than in the U.S.
• The transition to production in the U.S. usually involves a significant investment of capital. These investments are risky if the tariff rules are subject to the presidential whims of “on today” and “off tomorrow”. The flow of capital requires a certain degree of stability not yet demonstrated by Trump’s trade negotiations and policies.
• Another more reasonable goal for tariffs is to promote ”national security”. Why should the U.S. allow rivals/enemies (China) have control over the production of components (like semiconductors) that are essential for military weapons or the high tech utilized to obtain sensitive intelligence. This has led to opposite policies: (1) Semiconductors are so important that the president needs to carve out an exemption from tariffs for them, thereby guaranteeing their continued production and availability, at least in the short run; OR (2) Semiconductors are so important for our national security that we need to ensure their production occurs within our country. This can only done if we have high tariffs on them and thereby making it more economical to produce them here.
• Trump is right when he affirms that international trade is sometimes unfair. He is wrong when he affirms that the U.S. is always the victim. A personal anecdote illustrates his error. I was living in Mexico in 1976. At that time the U.S. dollar was pegged at 12.5 pesos. Wealthy investors caused a run on the banks by buying up these “cheap” dollars. The Mexican government had to slow down this run on the banks and did so by devaluing their currency to a 24 peso to the dollar rate. Overnight the purchasing power of my dollars almost doubled whereas the ability of my Mexican friends to buy American products was cut in half. I personally benefited from the devaluation. My Mexican friends were the victims. What happened at an international level? Americans began buying more Mexican (now cheaper) products and Mexicans bought fewer products made in the U.S. Although this was seen as a trade “deficit” (from the U.S. point of view), in fact, Americans were beneficiaries of this dramatic weakening of the peso. Similar devaluations took place in Argentina, Brazil and much of the Global South with the corollary huge increase in inflation in those nations. These frequent devaluations have been pushed by the IMF, the World Bank, and others. The world winners have mostly been the United States and other countries in the Global North. Through decisions way beyond my control, my fellow Americans and I have benefited.
• Insider trading takes place when some investors have advanced knowledge of some decisions which might greatly affect the rise or fall of stock indexes and then use this information to buy or sell certain stocks to make personal gains. This is morally unfair.  President Trump’s 90 day “pause” on the reciprocal tariffs led to an historic skyrocket rise in the Dow Jones index. Did any of Trump’s friends have and utilize advanced knowledge about the pause? An independent investigation will reveal the truth. Given that officials in Congress and the Cabinet do have access to confidential economic information, all such officials should be barred from buying/selling specific stocks while they are serving in public office.
• Handing out tariff exemptions is a highly lucrative business worth billions and billions of dollars. A week ago, Trump carved out exemptions on some electronics from China. Later, his economic advisers stated that these exemptions will be placed in a special “semiconductor bucket”. Do any of the president’s big donors control companies that will receive these exemptions? If so, this is corruption. Congress must grow some backbone and exercise its responsibility to oversee tariffs.  

One of the greatest strengths of our nation includes the checks and balances codified in our Constitution. The Legislative, Executive, and Judiciary are co-equal branches of our government and are an essential component of those checks and balances. For the wellbeing of our country, may each branch do its job. This applies to issues of tariffs and trade raised in this post.