Shooting Ourselves in the Foot on Trade


Trade Deficits
Shooting Ourselves in the Foot on Trade

USA – -( The Canadian government, lining the pockets of its dairy producers, imposes high tariffs on American dairy imports. That forces Canadians to pay higher prices for dairy products.

For example, Canadians pay $5.24 for a 10.5-ounce block of cheddar. In Washington, D.C., that same amount of cheddar sells for $3.64. Canadians pay $3.99 for a 1-pound container of yogurt. In Washington, D.C., you can get nearly twice as much yogurt for a little over $4. It's clear that the Canadian government's tariffs screw its citizens by forcing them to pay higher prices for dairy products.

What should the U.S. response be to Canada's screwing its citizens? If you were in the Trump administration, you might propose imposing tariffs on softwood products that Americans import from Canada — in other words, retaliate against Canada by screwing American citizens. Canadian lumber — such as that from pine, spruce and fir trees — is used in U.S. homebuilding. Guess what tariffs on Canadian lumber do to home prices. If you answered that they raise the cost and American homebuyers are forced to pay higher prices, go to the head of the class.

This retaliation policy is both cruel and not very smart. It's as if you and I were in a rowboat out at sea and I shot a hole in my end of the boat. What should be your response? If you were Secretary of Commerce Wilbur Ross or Secretary of the Treasury Steven Mnuchin, you might advise retaliating by shooting a hole in your end of the boat. If I were president, I'd try to persuade officials of other countries not to serve special producer interests by forcing their citizens to pay higher prices.

But if they insisted, I'd say, “Go ahead, but I'll be damned if I'll do the same to Americans!”

The ruse used to promote producer interests through tariff policy is concern about our large trade deficit. It's true that we have a large current account trade deficit. However, that's matched exactly by a very large capital account surplus. Translated, that means Americans buy more goods from other countries than they buy from us; that's our current account deficit. But other countries find our investment climate attractive and invest more in the U.S. than we invest in other countries; that's our capital account surplus.

Have you ever wondered why foreigners are willing to invest far more money in Texas and California than they are willing to invest in Argentina and Venezuela? Do you think it's because they like North Americans better than they like South Americans? No. We've always had an attractive investment climate, and we've had current account deficits and capital account surpluses throughout most of our nation's history. In fact, the only time we had a sustained current account trade surplus was during the Great Depression, when we had a surplus in nine out of 10 years, with 1936 being the lone exception.

Let's delve a bit into the politics of trade tariffs. Whom do we see spending the most resources lobbying for tariffs on foreign steel and aluminum? Is it American users of steel and aluminum, such as Harley-Davidson and John Deere? Or is it United States Steel Corp. and Alcoa? Of course, it's U.S. Steel and Alcoa. They benefit from tariffs by being able to sell their products at higher prices. Harley-Davidson and John Deere lose by having to pay higher prices for their inputs, steel, and aluminum, and their customers lose by having to pay higher product prices.

There's a lot of nonsense talk about international trade, which some define as one country's trading with another. When an American purchases a Mercedes, it does not represent the U.S. Congress' trading with the German Bundestag. It represents an American citizen's engaging in peaceable, voluntary exchange, through intermediaries, with a German auto producer. When a voluntary exchange occurs, it means that both parties are better off in their own estimation — not Trump's estimation or General Motors' estimation. I'd like to hear the moral case for third-party interference with such an exchange.

Walter E. Williams
Walter E. Williams

About Walter E.Williams

Walter E. Williams is a professor of economics at George Mason University. Williams is also the author of several books. Among these are The State Against Blacks, later made into a television documentary, America: A Minority Viewpoint, All It Takes Is Guts, South Africa's War Against Capitalism, More Liberty Means Less Government, Liberty Versus The Tyranny of Socialism, and recently his autobiography, Up From The Projects.

  • 16 thoughts on “Shooting Ourselves in the Foot on Trade

    1. America has lost a great deal of our manufacturing companies because our wages and regulations made us uncompetitive compared to other countries exports.
      We no longer produce shirts in America.
      I think Lane Furniture was the last American producer of furniture and I think they closed their last plant recently.
      US Steel used to be one of, if not the largest steel producers in the world and now they are a shell of their former self.
      I know there are many more industries that have closed their doors because they could not compete price wise with imports.
      In my opinion, if we import products, tariffs should make the imported product on a par pricewuse with the American produced product.
      That way, products would be evaluated on their quality and performance, not on cost and, hopefully, American manufacturing plants would reopen as our steel mills are currently.

      1. @Dave, Can you imagine a country that can not even produce shirts fighting for national survival in a world war? We may as well start teaching Chinese language classes in grade school.

      2. Dave, Bassett still makes furniture in the USA, North Carolina, specifically. Also, there are quite a number of others that also make furniture in the USA. I know this because we recently bought two sofas and searched for furniture made in the USA, not China as much is in the low-end market, but, surprisingly, in the higher tiers, also.

        Your last comment on tariffs is correct, that is supposed to be the point of tariffs, to make the imports cost competitive with the products made in one’s own country. Other countries use tariffs to make our products more expensive than theirs. In some of those countries that just turns US products into status symbols and more desirable.

    2. Walter, Right now Chinese get subsidized shipping from China to the US. Ebay is loaded with sellers from China that ship direct to the buyer and the shipping is subsidized, almost free.
      Yet, if I import the same product, I pay full shipping from China to the US, and again to ship to the buyer. I can not compete. So, how is free trade fair? Globalists want free trade.

    3. Author missed the point of the tarrifs all together. The tarrifs weren’t done as a revenge scheme. The tarrifs were imposed because the U.S was the only entity paying while others pay ZERO! This bridged the gap and will help the economy mainly by seeing to it American made products are bought more locally than cheap China garbage. If all sides dropped tarrifs all together then the free market would expand and there would be no trade war.

      So while the anti-trump writers and nay-sayers would love for us all to think the trade tarrifs are so bad. Stop and consider what the real goal actually looks like. Trump has been meeting everyone in the middle, so say Canada came to Trump and said, hey, if we drop our tarrifs will you? Then you may find yourself in awe of this hardball tactic.

      So before you and others Mr Williams spout and condemn Trump for this strategy, stop and consider what the actual goal may be based on Trumps past actions.

      Besides, made in America for Americans isn’t a bad deal. And products are still being shipped abroad so relax.

      1. America has to have industry or we will not be able to defend ourselves. Chineese steel and aluminum are easily understandable examples. America needs to be able to produce everything that its armed forces need. That is big picture logistics 101.
        I hate to disagree with Dr. Williams, but he is looking through a business lens. He needs to look through a national defense lens.

        1. Why do you “hate to disagree with Mr. Williams”? If he is wrong (and he is) then he is wrong. Williams opinion looks at tariffs from a skewed perspective, not taking into account many other factors. One of the things he overlooks is that big corporations use tariffs to “raise” their prices; when they should be basing the price on the actual value (cost to produce and acceptable profit). Far too much of this is based on greed!

      1. @Mac, Yeah, American consumers are giving covert foreign aid to every country on earth through State Department arranged losing trade deals. The whole world, and global industrialists too, are wildly upset that Trump has caught on to this illicit foreign aid. Does anyone in Europe think that they could make a profit competing fairly against Americans? Could China if they were not stealing our intellectual property?

    4. I fight back the only way I am able – I buy American as much as possible. I specifically avoid Chinese if I can buy made anywhere else, sometimes it’s not possible. Do I pay more? Not always, and often not much more when I do.

      I have also told owners or clerks that they lost a sale because the product is Chinese. At a gun show a few months back I was looking at the knives from a vendor, they all used Chinese steel or were made in China. I told him I will not buy a Chinese knife. Next show he he had a sign by half his table stating USA made knives. The table was surrounded by customers. His listening to me appeared to be sound business sense.

      Tariffs can do only so much. We need to not buy those products regardless, and state why.

    5. The best solution for America to the present trade imbalances is lower tariffs by everyone.

      The second best solution for America is higher tariffs by every one.

      The worst solution for others who are “cheating on fair trade” is higher tariffs for all.

      There is already a trade war – when China and the EU are using one sided nigh tariffs and other import barriers to nearly stop imports from the United States of high value and high volume goods by cheating.

      Bringing free trade back may require the credible threat – or even the short term implementation of – some moderate tariffs by the US.

      The worst case, repeat the WORST CASE, for the US is to continue the current cheating system of unfair trade that has led to massive job looses in the US for decades and massive trade deficits for decades.

      When Canada is raising tariffs from almost 200% to almost over 300% on dairy products in response to the US imposing 10% tariffs on aluminum and 25% on steel the American people can smell a rat…

      And the US Media is telling us lies, AGAIN, BY OMITTING key facts – NO SURPRISE THERE …

      E. Bryan Hoover

    6. “….US Steel and Alcoa. They benefit from tariffs by being able to sell their products at higher prices….”
      And without tariffs on Chinese steel and aluminum, there won’t be any steel or aluminum produced in the US because it can’t be done at a price to compete.

      US Steel is reopening the Granite city plant because of the tariffs and bringing jobs to Americans who need them.

      It’s not hard to understand this.

    7. I agree with you Walter 90pct of the time. On this one…no no…..If America does not rebuild her industrial base and get out of these global trade agreements, which have very little to do with fair trade and a lot to do with changing our form of gov’t from free and independent to a slave state in a global communist world gov………We as Americans are doomed.

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