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As we launch into the 2018 summer season of punishing tariffs and counter-tariffs and with the present bad feelings between the global powerhouses, perhaps a second look at what we are *actually* trying to accomplish is in order — and if a better way of accomplishing our goals appears — would today’s leaders be bold enough to employ such a change-up?
Taking the American position as an example; U.S. President Trump feels that American steel and aluminum are at a competitive disadvantage to countries like, well, every other country in the world, which is why he has instituted import tariffs of 25% on steel and 10% on aluminum. Different tariffs have been levied by Trump on other imported items. All of which is supposed to help American steel and aluminum companies compete in the international marketplace and overcome decades of less-than-stellar reinvestment in U.S. rust belt industries such as steel and aluminum mining and smelting.
The pushback from exporting countries has been considerable and is expected to be matched on a dollar-for-dollar basis. Trade war, much?
The First Rule in Every Crisis: Don’t Make it Worse!
While there is plenty of angst to go around, President Trump must remember that the entire situation was created by every U.S. president since President Carter, and that countries were never told to stop or slow the exports to the United States, nor told to lower their exports to other Western nations.
That means it’s time for President Trump to ‘play nice’ with exporting countries — which have done nothing more than play by the rules that America itself had set.
The problems of the $862.2 billion balance of trade deficit that America is trying to draw-down can be made worse via bad communications, additional tariffs, or clumsy handling of the situation. Let’s not do that.
Rather, let’s try to improve on trade deficit elimination as time rolls forward.
How to Make it Better
Apart from not making it worse, the present uncomfortable situation could be solved to every party’s satisfaction by designing a tariff regime to solve the fundamental problem instead of trying to address each good or service individually — creating a pathway, not only to solve immediate concerns — but to provide additional revenue to assist the above-noted and other American industries stung by poor vision, poor leadership, and poor management of U.S. trade policy from the 1980’s onward.
Instead of piecemeal (and high) tariffs that are seen as exorbitant in some quarters, President Trump should institute a standardized 5% across-the-board tariff on every single good imported into the United States.
The gross total revenue of that 5% tariff would far exceed the revenue that would be collected by the present bric-a-brac collection of deeply unpopular tariffs.
With an annual tariff revenue pool that would far exceed that of the present tariff regime, the United States could allocate generous and proactive funding to several of America’s poorly-performing economic segments, which spending would be completely at the discretion of the Trump Administration and its successors.
That’s an extra $120 billion (approx) for America annually.
Invite America’s Trade Partners to Drop Their Existing Tariffs and Match the New 5% Standardized Tariff
And then, pour yourself a nice cool drink Mr. President because you’ve won.
End of the trade war, the beginning of accumulating billions of dollars that can be directed to American industries that have suffered as a result of heretofore unrestricted imports from economies that benefit from low-cost labour and lower environmental standards.
Be part of the solution.
Nothing would put a salve on the present air of hurt feelings like a major signing ceremony between the U.S. and China where both countries see it’s in their best interests to drop the existing punitive tariffs and support and abide by a standardized 5% tariff regime.
No doubt that the EU, The Commonwealth of Nations, Russia, and other global exporters would enthusiastically sign a matching and standardized 5% tariff agreement with the Trump Administration.
Problem solved. And everyone makes more money!
That’s how to employ the ‘Art of the Deal’ to turn a negative into a positive.