President Trump has been announcing that he plans on imposing tariffs on allied countries for products, such as motor vehicles, aluminum, and steel. Close political allies as well as American industry leaders have raised questions as to whether or not it would have a backfiring effect on the U.S, but foreign aides feel opposed to the concept.
Before we explain why tariffs are a bad idea, let’s clear a highly misinterpreted conception: tariffs on steel are not unconstitutional. An editorial posted by The New York Times suggested that enforcing tariffs on specifically steel was unconstitutional. However, the Trade Expansion Act of 1962, Section 232, states that the bill allows the executive branch to place import restrictions or tariffs on steel for national security reasons.
It doesn’t mean it is correct in economic terms. For starters, a tariff is simply a tax on the average American consumer and a small business. Preliminary to an income tax and the 16th Amendment passage in 1913, “the United States government funded its operations mainly through excise taxes, tariffs, customs duties and public land sales”.
So, this President, who signed the Tax Cuts and Jobs Act to support small businesses, should understand the logic of how that would hurt a small business in America.
Secondly, one of the top five trade partners with the Trump Administration, being Japan, “ranks second only to Canada for the value of motor vehicles imported into the United States”, according to WorldCity Trade Numbers. Up until March, the combined total for Japan and Canada was $20.5B. Japan slammed Trump’s idea for a tariff, adding that they were the only ones to be singled out of a steel tariff, amid peace negotiations with North Korea.
Retaliation will always be exploited, especially in the case of Germany. Trump, having already skipped the climate change meeting during the G7 conference, exiting the Paris Climate Accord, and the Iran Nuclear Deal, has irritated Germany, as they should be. Of course, that comes with consequences. President Trump is doing the right thing, though. He is searching for options on how to reduce the trade deficit with Germany and China.
Most importantly, if President Trump wants to continue increasing jobs and lowering jobless claims, tariffs are the last thing he would want to maneuver. Imports support many jobs at ports and manufacturing businesses, but also generate revenue for the three levels of government.
A report made by the Trade Partnership suggested that auto tariffs would eliminate at least 157,000 jobs and over 250,000 jobs to the world economy. The average price of a foreign vehicle would rise from $30,000 to $36,400, marking a 21% spike. In conclusion, the economy would waste 0.1% of its value.
In addition, the World Bank warned the U.S that it’s premeditated tariffs could trigger a major recession, identical to 2008.
Returning to Section 232 of the Trade Expansion Act, Trump needs to take into account that most of our trade comes from friendly countries. There is no national security threat regarding trade, especially for automobiles.
Jorge Velasco is the Founder and CEO of theDailyLead.