Yesterday’s tariff announcement was long expected, yet its details came as a surprise. In one regard it was less bad than it could have been: The baseline tariff of ten percent was less than the 20 percent widely touted. But the methodology of the “reciprocal tariffs” added to the baseline tariff was dismaying and not one many practicing economists had considered. The effects of this announcement are likely to be disadvantageous to Americans and may risk economic disaster. They will also have geopolitical effects that future American administrations will rue.

To begin with, the reciprocal tariffs are supposed to represent the sum of tariff and non-tariff barriers imposed by the foreign nation on American exports, plus factors like Value Added Taxes (which are not trade barriers). However, the administration says it calculated this based on the assumption that “the trade deficit that we have is the sum of all the unfair trade practices, the sum of all cheating.” This assumption essentially says that all American trade deficits are the result of unfair trade practices, whereas economic analysis says differently (they are caused by differences between the nation’s capital account and current account). So, the initial assumption is faulty.

This leads to absurd situations. Small, poor countries that cannot afford to buy many US goods are penalized harshly. Even uninhabited islands are subject to the ten percent minimum tariff. But so are countries like the UK that has its own trade deficit with the United States (one might ask if this is the result of US “cheating”). Moreover, this applies only to trade in goods. Trade in services, where the US routinely runs surpluses, are not mentioned.

As CEI analysts have argued until they are blue in the face, these trade barriers will be harmful to American consumers. They will also cause problems for American producers, and have already led to factory closures and the loss of manufacturing jobs. Global stock markets are reacting badly, and the dollar is falling. All of this was entirely predictable, and it is likely to continue. A recession is not out of the question.

Full Post with more analysis by Iain Murray @ Competitive Enterprise Institute https://cei.org/blog/an-economic-constitutional-and-geopolitical-disaster/

WASHINGTON DC – National Foreign Trade Council (NFTC) President Jake Colvin today issued a statement following the announcement by the President of new reciprocal tariffs:

“We share the President’s desire to grow U.S. production of manufactured goods, agriculture products, services, and knowledge, but dramatically increasing America’s tariffs will undercut that objective.

“Without oversight from Congress, the President intends to raise tariffs to the highest levels since the Great Depression, which jeopardizes the competitiveness of U.S. businesses and the pocketbooks of all Americans.

“While the price of imported goods will undoubtedly rise, the President’s tariffs will also tack on added costs to American manufacturing, assembly and farming. There is simply no way to mitigate all of the added costs of inputs to finished goods from the Administration’s complex and growing web of tariffs. Consumers should expect to see higher prices for everything from groceries to home renovations to auto insurance as construction and repair costs rise. 

“The America First Trade Policy rightly recognizes the harmful impact that discriminatory measures can have in preventing U.S. companies from accessing foreign markets, but tariffs should be a scalpel to remedy specific unfair practices, not a sledgehammer that disregards our trade commitments, invites retaliation and undermines the competitiveness of U.S. businesses and the finances of the American people. 

“The Administration, Congress and America’s key trading partners and allies quickly need to identify paths forward to de-escalate and seek a durable new normal that lowers barriers, rebuilds trust and minimizes uncertainty.

“We look forward to partnering with the Administration and Congress to think creatively about pathways to foster trust with our trading partners and achieve our shared goals of lowering trade barriers and enhancing the competitiveness of American businesses and workers.”

Source:The National Foreign Trade Council @ https://www.nftc.org/tariffs-jeopardize-the-competitiveness-of-u-s-businesses-and-the-pocketbooks-of-all-americans/