Trump's tariffs (and other wars).

 

As a classic attention seeker President Trump must have enjoyed his day in the sun yesterday, with the eyes of  concerned citizens in almost every country in the world on him.  The Guardian’s leader predicted that ”No British retaliation [would] mean GDP 0.4%  lower this year and 0.6% next.” (2^nd April.)  By my calculations that means 40p less in every prospective £100 earned, then 60p.  The bombarded in Gaza, front-line soldiers  and citizens of Ukraine,  and millions starving in Sudan and South Sudan, not to mention about 200 other “hot” wars, would presumably give their ears for that level of inconvenience.

Be that as it may, if this is the start of the imposition retaliatory tariffs  world prosperity is at the beginning of a downward spiral similar to that of the 1930s, when one major economy after anther tried to “export its unemployment” by imposing “tit for tat” tariffs.

President Trump’s reasoning is wrong on at least two counts. First, the “rust belt” will not be rebuilt and his “left behind” supporters will not get their old jobs back.  It seems ludicrous to have to remind one of the world’s most dynamic economies that the modern world economy is dynamic and countries prosper when they produce what the world is going to want tomorrow rather than what we used to want yesterday.  (Something to which Britain has had and still has difficulty in adapting to.)

Secondly, the idea that tariffs generate a “nice little earner” from foreigners paying to sell their  products  in your country, is highly misleading.  A tariff is a tax at least partly and often largely  paid by a country's  own consumers.  In the jargon, a tariff raises the price to the consumer and lowers the price received by the producer, the relative incidence being determined by the relative elasticities of supply and demand.  “A” level candidates in economics are taught to draw graphs to demonstrate this until it’s coming out of their ears.

A  friend of a former “Peace Corps” friend has just sent me a list of five conversation stoppers he suggests to throw in when stuck with MAGA relatives round the table.  No 2 is “I can’t wait for Trump’s Tariffs.  I’m sick of paying so little for everything.”

Oh, and one other thing: Trump regards countries which collect sales taxes  or VAT as discriminating against America, and believes this justifies even higher tariffs.   They don’t and it doesn’t.   These taxes are normally paid by all domestic producers so the playing field from that point of view is level.  The most marginal of GCSE candidates could have told him that.

The problem for our governments is how best to respond.  Some leaders are quite belligerent and advocate punishing America in kind.  The purpose is supposedly to  force America to back down.  But, as in the 1930s the likely result, with obstinate boneheads in charge, is to punish ourselves.

Perhaps a “softly softly” approach could be better.  Do nothing now.  Wait and see.  Maybe soon the American people will tire of paying higher prices for world products, realise they’ve been duped and, if they can’t turn Trump out, at least elect a congress that can put a stop to this cavalier nonsense. 

And in any case, Trump may very soon lose interest and move on to another fad.  If so, let’s hope it doesn’t involve nuclear weapons.