Many Americans see restoring the heyday of U.S. manufacturing as very appealing, even if it means destroying the Chinese economy in the process with new trade barriers. They don’t see how new trade restrictions on China would also drastically reduce Americans’ standard of living. Such restrictions have the potential to destroy our own economy too.
Donald Trump demonstrated this viewpoint in an interview with Greta Van Susteren on Monday when he said what many Americans believe: “China doesn’t play fair.”
His solution, if he were president? “I would immediately tax Chinese products 25 percent.”
“China’s economy would be destroyed if they could no longer make deals with the United States,” Trump said.
He may be right, but it’s a bad idea.
The Donald’s hyperbole echoes what Americans are already seeing: Jobs are going overseas and “Made in America” is becoming a relic. But the first lesson of economics, as the late Henry Hazlitt taught, is tracing all of a policy’s effects — both the seen and the unseen.
A tax on Chinese imports would make everything more expensive. Everything. Start with the products we import from China costing 25 more in new taxes. That’s $182 billion worth of goods this year so far, according to the U.S. Census Bureau. Shoes that cost $20 right now would suddenly cost $25.
And the effects ripple outward. Many American-made goods now rely on metals or parts imported from China. The parts in the American car you drive that came from Chinese manufactures, and the parts made in the U.S. with Chinese commodities, would rocket upward in cost as well.
The ripples spread further. Americans have built their lives around the current cost of living, the daily prices we pay to live. Our lifestyles would drastically change because we would have to choose: spend more money to get the same amount of stuff, or spend the same amount and get less.
Many Americans would choose door number two, spending the same for less. American-owned companies that sell goods made in China will earn less business. They employ thousands of Americans.
It won’t be the wealthy CEOs who are downsized, laid off or demoted in pay. And those who are thrust onto the taxpayer’s unemployment dole probably won’t have as much money to spend on buying American.
All this says nothing about how an immediate increase in the cost of everything would bring new instability to the stock market, affecting our already-languishing retirement funds.
The mass media doesn’t report on the thousands of little decisions like these, made in response to a government policy, unseen by the eyes of the public but felt everywhere. Take the taxes President Obama imposed on Chinese-made tires. News reports exult when U.S. tire makers sell more product. But the unseen effect is how the increased cost makes American drivers squeeze extra mileage out of their old tires. This translates to lower fuel efficiency, higher gas prices for everyone and more frequent car accidents.
These are only a few of the effects of trade barriers on ordinary Americans. And what about the billions affected in China? If you think China threatens us now, wait until the world’s most populous country faces U.S.-imposed economic destruction via a trade war.
Trump is vocalizing the frustration Americans feel by losing the existing economic scrimmage. He’s also accurately articulating our collective annoyance with President Obama’s myriad taxpayer-funded vacations. Or leadership and policies aren’t helping us compete and we want a change in course, just as American farmers wanted a change in course in 1930. But the 34 percent tariffs brought by the Smoot–Hawley Act didn’t help Americans compete. They prolonged the Great Depression.
There are many ways to make American businesses compare favorably with those in China, ways that understand both seen and unseen effects without trying to jury-rig the economy with new federal taxes.
Maybe a better tactic would be leveling the playing field by making our capital gains tax rate match China’s: zero percent.
T. Elliot Gaiser is a senior at Hillsdale College and the host of CPR Podcasts at www.conservativeprivateradio.