Robert Robb
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By Robert Robb
Donald Trump, his administration and outside supporters have offered varied and contradictory rationales for his fixation on tariffs.
One rationale is to foster a significant increase in domestic manufacturing employment. Another is to raise revenue for the federal government. Another is to acquire leverage to obtain more favorable terms for American exports.
I don’t think protectionist tariffs would produce a significant increase in domestic manufacturing employment. But for it to have a chance to do so, the tariffs would need to be high enough and certain enough to induce long-term investment in additional domestic manufacturing capacity.
However, if the tariffs resulted in a substantial substitution of domestically produced goods for foreign produced ones, the revenue gain for the federal treasury would be limited. And if the tariffs are leverage for more favorable terms for exports, then they won’t be certain enough or long enough to induce investment in additional domestic manufacturing capacity.
I believe Trump is capable of holding contradictory thoughts without fully realizing that they are contradictory. I think he believes in protectionist tariffs. But his whiplash tariff actions chill domestic investment across the board, rather than induce more of it in manufacturing capacity.
Regardless of motivation or intent, I think the endgame of Trump’s tariff mania is predictable. It won’t be protectionism or freer trade. It will be more managed trade, in which the flow of goods across borders is determined less by consumer preferences and more by political leaders. The tools will be quotas and purchase agreements.
The Phase One trade deal Trump made with China during his first term offers an instructive illustration. The deal included some boilerplate provisions about China doing such things as protecting and respecting intellectual property. However, the heart of the deal was an agreement by China to purchase $200 billion more a year in various U.S. exports, with a particular emphasis on agricultural goods.
This wasn’t a product of a reduction in tariffs that might lead to that result. It was a commitment by the Chinese government to produce that result irrespective of tariffs or other market factors. In China's command economy, the government can credibly make such a commitment, although China reneged on this one.
A quota is at the heart of the trade deal the administration recently struck with Britain. The first 100,000 British cars imported would be subject to what appears to be the Trump administration’s base tariff of 10%. Any British cars imported above that number would be subject to a prohibitive 25% tariff.
The 100,000 figure is roughly the level of British car imports now. But what if a British car manufacturer came up with a spiffy new product that Americans really liked? Too bad. The level of British car imports is now set by respective political leaders, not market preferences. They would have to negotiate a change in the quota. It’s worth noting that the legal fig leaf for this is that the level of British car imports somehow constitutes a U.S. economic emergency.
There was some tariff relief in the agreement, particularly for U.S. food exports. But this is likely to have limited effect, since Britain’s food safety standards remain in place. They forbid hormone-treated beef and chlorinated chicken, which are standard manufacturing practices in the U.S.
At around the same time, Britain also reached a trade agreement with India, and the differences are substantial and illuminating. The UK-India deal reduces tariffs across a broad range of goods and services. So, the heart of the U.S. deal was a quota on British car imports. The deal with India was a substantial stride toward freer trade generally.
The UK-India agreement is not an international outlier. While virtually all countries have some protectionist measures, the movement generally continues to be toward freer trade with the United States being a very large exception.
The predominant trend is likely to be a continuation of free trade agreements, but ones that exclude the United States. Meanwhile, other countries will try to temper Trump’s tariff tantrums with offers of quotas and purchase agreements.
Negotiating trade agreements that promote freer trade, leaving trade balances to comparative advantage and consumer preferences, is hard and time-consuming work. There is no indication that the Trump administration has the ken or inclination to take it on. Quotas and purchase agreements are the likely shortcut.
This is far from optimal for American consumers and businesses. Agreements between political leaders are inferior to markets in optimizing consumer preferences and business productivity.
However, it would not be nearly as damaging as a real commitment to protectionist tariffs. There is a part of Trump that believes in protectionist tariffs. However, he has proved unwilling to endure the market and political reaction of staying the course.
The stand down on China tariffs is the latest example. The ratcheting up of the tariffs imposed on Chinese goods was particularly bizarre. Because China wasn’t lying prostrate and adopted retaliatory measures, Trump kept raising the stakes until an effective trade embargo was enacted, without any real intent to produce that outcome. The economic fallout would be catastrophic.
So, an agreement was reached to reduce U.S. tariffs on China to 30% and China’s tariffs on U.S. goods to 10%. The MAGA movement will try to spin this as a U.S. win, but that’s a tough sell. It’s worth remembering that in 2016, before Trump became president the first time, the trade-weighted average Chinese tariff on U.S. goods was 3.5%.
While Trump has flinched from staying the course on protectionist tariffs, he is far from providing the certainty and stability that the economy needs. His tariff policy very much remains a moving target.
While I think that it is predictable that any trade deals will feature quotas and purchase agreements, everything else remains up in the air. Including how long negotiations will take and what tariff actions and threats will be made in the interim. And it is likely that negotiations are iterative, with tariffs an ever-present threat.
Uncertainty is the enemy of productive private-sector investment. Ninety-day reprieves do not create or provide certainty.
Editor's note: Retired Arizona journalist Robert Robb opines about politics and public policy on Substack. Reach him at robtrobb@gmail.com. Please send your comments to AzOpinions@iniusa.org. We are committed to publishing a wide variety of reader opinions, as long as they meet our Civility Guidelines.
