The China, US, Trade War – It’s All Mutual On The Way Down As Well As Up

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So Donald Trump is going to spiral the trade war up a level by imposing tariffs on $200 billion’s worth of Chinese goods. Presumably the next stage will be China imposing more tariffs on more US goods – although obviously they cannot hit quite as much trade as the US doesn’t sell that much to China. But this is how this idiocy works, as it did with Smoot Hawley those several of generations back:

The Trump administration pushed ahead with plans to impose tariffs on additional $200 billion in Chinese products by releasing a list of targets, marking a sharp escalation in a trade war between the world’s two largest economies.

As we all know, this makes Americans poorer by whatever the price rise on those $200 billion worth of products is.

The Trump administration has said it would slap 10% tariffs on an extra $200bn worth of Chinese imports, prompting Beijing to promise to “fight back as usual” in an announcement that brings the two countries closer to the brink of a full-out trade war .

An initial rule of thumb would be that makes Americans $20 billion poorer. Not that it’s going to stop there of course:

On Friday, Mr Trump’s administration imposed 25 per cent duties on $34 billion in Chinese imports, the first time he has implemented tariffs directly on Beijing after threatening to do so for months. China immediately retaliated with duties on the same value of American goods, including soya beans and cars. The US was already known to be considering levying duties on a further $16 billion in Chinese goods. China has vowed to retaliate dollar-for-dollar to any further tariffs imposed by the US.

And so the lunacy spirals on. And yes, it is lunacy. The entire point of trade, the very purpose of it, is to gain access to the imports. Those things which Johnny Foreigner makes cheaper or better than we do. To tax ourselves because he makes things cheaper or better than we do is simple idiocy. But then we’ve Peter Navarro and Robert Lighthizer as the two major trade peeps in this administration, right?

Over and above this stupidity there’s the depressing point that trade and trade protection really is a spiral. Here we’ve got the two largest economies on the planet tripping over themselves to punish their own citizenry for their temerity in buying foreign. And as we can see, it is a tit for tat spiral. A little bit as sabre rattling, a response, a larger amount of shouting, a response, then truly impoverishing levels of rock throwing into own harbours and off we go into making our own people less wealthy.

The true sadness here being that the spiral works the other way too. But hugely, vastly, more slowly. GATT was founded in 1947, it became, the process was transferred to, the WTO and it has taken them since then, that two generations, to reduce tariff levels to where they’re not really all that important in trade matters. Something that is being undone in just a couple of months of foolishness. GATT being something of a response to the economic demolition work done by Smoot Hawley of course.

Trade protection does spiral up and spiral down, the sadness being that here’s an asymmetry to the process. The reductions that make us richer take very much longer than the nonsenses that impoverish.