Is Trump winning the trade war, and by extension, is America winning? The answer to that question is dependent upon who is paying the tariffs. The knee-jerk response is that whomever is being taxed will pay the bill. But what happens when the government taxes gasoline? Exxon passes those costs on to you, largely because you have no alternative to gasoline. So, does the American consumer also pay for all these taxes on Chinese products? Not at all.
If China passes on the full costs of the tariffs, we’d buy more from other countries or make stuff here at home. The facts bear this out — the 25 percent tariff only raised prices on those Chinese products by 4 percent. Who is paying the other 21 percent? The Chinese exporter. So, China is paying 84 percent of the costs for these tariffs.
Conversely, the products we sell to China are also being taxed by their retaliatory tariffs, but American companies are largely able to pass those along to the Chinese. Where else will China find a huge supply of soybeans, pork, heavy machinery, raw materials like metals, chemicals, and plastics, etc.? They can’t find a supplier that can match our raw efficiency and production. Despite the claims by China’s state-run media, there’s little reason to believe China will buy less from the U.S.
Larry Kudlow is right to say the American consumer will feel some pain in this fight; certain prices have risen. But real wages are rising fast, the economy is booming, investment is through the roof, and there’s no inflation. If this economy is a 10,000-ton freight train, the trade war is the tin can on the tracks. You know who wins.
With such a powerhouse economy, we must wonder: how did we get here, where America has been getting beat on international trade? It doesn’t make sense when you consider that American workers are three times more productive than their Chinese counterparts. Our workers have more capital and production capability at their fingertips than virtually any other nation in the world. The answer is that China has been waging a trade war for decades, and our leaders have been asleep at the wheel.
China has been heavily subsidizing their own industries to bankrupt American competition, while also taxing America’s exports so that our companies can’t compete in China. On top of that, they steal intellectual property (IP) to avoid paying the research costs we’ve invested in. They also use non-tariff barriers (NTBs) like quotas and regulations to limit sales of our products. “Free” trade with China has been a snare and a delusion, and Trump knows it.
The trade war is worth fighting. Being able to buy hordes of cheap garbage from China is worthless if you don’t have an income. Remember, your income is based on what you produce, so we want to produce more, not less. But this gives us strong leverage in the trade war – when we don’t trade with China, we buy more expensive products elsewhere or make it ourselves, but China has just lost income, and lots of it. They can’t afford to fight this war, but we can, with a robust economy that is shrugging off the costs.
China paying the bulk of the tariffs is also a huge advantage that multiplies as this drags out. Chinese citizens pay taxes to subsidize their industries, whose products are taxed by us, roughly in the amount of the subsidies. Those taxes are paid to the U.S. Treasury. So, by that calculus, Chinese citizens are paying taxes to the American government. How is this not a win for America?
Free and fair trade is beneficial for us and the world. But this means no subsidies, no tariffs, and no non-tariff barriers — anywhere. It is not fair for us to play by the rules, and for another country to eat our lunch.
Trump’s goal is free and fair trade because he knows Americans will win on a level playing field. This is a fight worth having, especially since we have the Trump card. Pun intended. Every fight has winners and losers. Our American heritage is one of fighting and winning. Gone are the days of our leaders abandoning our proud heritage. President Trump is fighting again and he’s winning.
Erwin Antoni is an adjunct professor in economics at Sauk Valley Community College in Illinois.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.