Guest MINDSETTER™ Block: Nobody Wins a Trade War

Sunday, March 25, 2018

Guest MINDSETTER™ Ken Block

Ken Block

Love him or hate him, no one can argue that President Trump is not fond of making brash policy moves. His latest, the imposition of tariffs on up to $60 billion of Chinese imports, is one that I dislike – a lot.

For starters, many people, myself included, dislike new taxes – especially hidden taxes. The proposed 25% tariff on $60 billion of goods purchased by Americans will be a new, $15 billion tax paid for by every one of us.

This is not the first new tax inflicted on Americans by new tariffs. A 20% tariff on foreign-manufactured washing machines is now in place for 2018, and the tariff rises to 50% starting in 2019.

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The tariff also applies to foreign-made washing machine components. Virtually every washing machine has foreign-made components, so the cost of every single washing machine goes up.
Try finding a bunch of high quality, US-made washing machines.

Part of the rationale for the China tariffs is a desire to try to level the playing field regarding trade between the US and China. This is a good goal, as China certainly has not played fair in the past and does not play fair now. But are tariffs and the ignition of a trade war the best way to do this? No.

Many people have expressed a concern regarding the growth of the Chinese economy relative to ours. Bear in mind that China is a country of more than a billion people, with an economy of under $12 trillion a year, while the US, with a population of around 300 million people has an economy of more than $17 trillion. It is natural as China modernizes that its economy will grow at a faster rate than the US economy simply due to the dramatic difference in size of our populations.

Do we want a country with a population of a billion people poor, desperate and destabilized, or growing, prosperous and stable?

We do need to address the unfair trade practices in place today. But a tit-for-tat trade war – which has begun in earnest since China has announced new tariffs on products from states that were strongly pro-Trump – can only lead to dark places none of us wants to go.

The best way to deal with China’s unfair protectionism and illegal theft of intellectual property is to bring other major trading partners on board to pressure China to change its ways. Our trading partners all suffer from China’s unfairness. The US acting unilaterally is nowhere near the threat of ten of China’s top trading partners acting together to push that country to change its ways.

Lastly, businesses and consumers need stability. An instant 25% jump in the costs of some goods is the very opposite of stability.

If you are concerned that your older washing machine will give out soon, you had best buy a new one this year, because for sure whatever machine you buy will be far more expensive next year. Unless things change again. And they might. Who knows?

Ken Block is a Rhode Island businessman and ran for Governor if Rhode Island in 2014.

Guest MINDSETTER™ Block: Nobody Wins a Trade War

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