Trump and many US isolationists are calling for heavy tariffs to be levied to restore American industrial prowess. A tariff is effectively a tax on imports, with their sister being a subsidy, which is a payment to producers, allowing them to sell goods for cheaper.
The rationale behind putting tariffs on Chinese imports is the claim that their government is subsidizing many key industries, solar, batteries, and electric cars among them, allowing their firms to sell goods on the international market at artificially low prices, undercutting the competition.
Protectionist tariffs have backfired in a number of countries historically, resulting in higher priced goods and lesser quality alternatives. They can work as a short term boost to build a competitive local industry. But, in the long run, as David Ricardo detailed a few centuries ago, two nations get richer if they both trade off what they specialize in, as opposed to applying tariffs against what the other has a strategic advantage over the other in. Essentially, the French should keep selling Brandy in return for Brazilian beef.
However, Ricardo was reflecting on agricultural societies. These were strategic advantages often stemming from superior land for a given crop. The French do not want to anymore be known singularly for Brandy as the Americans do for corn. The Chinese strategically developed comparative advantages by way of a supply chain of cheap and capable labor, materials and logistics that, boosted by subsidies, create a competitive advantage in electronics based goods. This competitive advantage in supply chains was developed intentionally over decades.
If the US is serious about its tariff strategy, there must be a clear plan to develop similar competitive advantages in something other than the intellectual property, which often does not involve large labor forces. The Trump administration’s bluster about a trade war with China could very well hurt American consumers more than it creates better paying jobs unless a very targeted strategy in key industries is pursued. An American resurgence in the manufacture of high-tech goods is a gamble that requires precision. The tariff hammer may be the wrong tool for the job.
It is convenient to think that by killing the head of the snake with fire and fury, the gophers will leave the garden alone. Recent history in the Middle East has shown that scenario to not only be false, but instead, the gophers reemerge more emboldened and there are holes everywhere in the garden.
Trump supporters are pointing the finger at Biden, but he's not to blame for inflation.
