Donald Trump’s Big Trade Tariff Adventure

Jun 25, 2018

Since the spring, the Trump administration has imposed a wave of tariffs on 1,102 imported goods, from aluminum and steel, that is, the building blocks of basic industry, to consumer items like washing machines, solar panels, and LED lighting.

Do these tariffs signal a real change in U.S. trade policy? Or are they one more instance of Trump grandstanding, playing to the chauvinism of his America First voting base?

For all the furor Trump’s rhetoric has produced, it is much ado about little. Even if the tariffs that Trump has announced take full effect–which is doubtful–they will hit only a very small portion of the roughly three trillion dollars a year in imports into the U.S. As Stephen Gallagher, managing director of Société Générale, explained, “... right now it’s more of a temper tantrum on trade, as opposed to a real war,” (Wall Street Journal, June 19), although, as Gallagher points out, there is always the risk that it could develop into something much bigger.

But Trump’s tariffs have already produced a huge mess. U.S. manufacturing companies that use imported steel and aluminum have flooded the U.S. Commerce Department with 20,000 applications for product exemptions from the tariffs, claiming that they can’t get the specialty steel or aluminum from anywhere else. But all the budget cuts carried out under Trump and his predecessors has reduced the manpower in the Commerce Department so much that it was only able to process only a total of 98 applications in a period of three months.

Other large U.S. companies, from semiconductor chip makers to diesel engine manufacturers, have also lodged complaints with the Commerce Department about suddenly having to pay tariffs on their own products, given the complex global nature of these companies’ supply chains. To those objections, the Trump administration says that the companies can also put in an application for their products to be excluded from tariff payments ... to the very same undermanned Commerce Department bureaucracy which is already backed up with tens of thousands of applications! In other words, nothing will happen “soon.”

But many manufacturing companies in the U.S. that stood to benefit from the tariffs raised their prices even before the tariffs took effect. Companies producing steel and aluminum in the U.S., for example, immediately raised their prices by 40 per cent.

Is the U.S. the Victim?

Trump’s claim that the U.S. is taken advantage by every other country, especially China, is a complete lie. Even Trump’s own Council of Economic Advisors undercut these claims. In their official 2018 Economic Report to the President that Trump himself signed (no doubt without reading), Trump’s economists explain the trade deficit is not a sign of economic weakness, of “America” being taken advantage of by every other country, as Trump has insisted.

“The United States has been able to sustain a trade deficit in part because of the role of the U.S. dollar to the global economy,” according to the report by Trump’s advisors. “Foreigners are happy to hold U.S. dollars and dollar-denominated assets, which they obtain by selling more goods and services than they buy.”

In other words, because the United States has been by far the dominant economic power in the world since at least the end of World War II, it has been able to impose its currency, the dollar, as the reserve currency which other governments and central banks keep in their coffers, to buttress their own currencies. Moreover, much of international trade (such as oil) is carried out using dollars. Over many decades, this has fueled a steady demand for U.S. dollars all over the world. And it has allowed the United States government to purchase goods from the world market simply by printing money or issuing debt. Foreign countries fund this debt by trading real goods for pieces of paper (or rather its virtual symbols on a computer network), in reality trading something for nothing. Often times, this money never even leaves the United States. This allows United States companies and its government to consume more than they produce and finance their investments by borrowing from foreign companies and countries. In other words, U.S. imperialism uses the dollar to drain the wealth produced by workers all over the world.

No, the U.S. is not the victim. It is U.S. imperialism that victimizes the rest of the world.

Manufacturing in the U.S.

Also false are Trump’s claims that foreign competition has undercut U.S. manufacturing. On the contrary, the manufacturing process has simply become more international in scope, with U.S. companies most often dominating the global supply chain and global assembly line. Apple iPhones that are sold all over the world, for example, might be stamped with a “Made in China” label. But their design, development, marketing and software are all carried out in the U.S. And some of its most expensive parts, such as the processors, are also made in the U.S. Thus, most of the revenue and profits stay in the U.S. “Made in China” just means that is where final assembly took place, the least profitable part of the operation. Even cell phones made by Chinese companies, such as ZTE and Huawei, also use the same U.S.-made processors, the guts of the cell phone. So, U.S. companies still grab a big part of the profits from many products that are made by Chinese companies, as well.

Of course, Trump says that he is using tariffs to save jobs lost to foreign competition. And it is true that 5.5 million manufacturing jobs were lost from January 1989 to January 2018, a devastating 30 per cent drop.

But it is ludicrous to attribute this drop in employment to foreign competition, since in that same time period industrial production in the U.S. increased by 60 per cent, according to the U.S. Federal Reserve!

In other words, millions fewer workers in the U.S. are producing substantially more, creating much more wealth for U.S. companies and the capitalist class. That’s the problem.

Trump has made a big deal about supposedly saving steel workers’ jobs, whose numbers dropped by 400,000, or 75 per cent, between 1962 and 2005. But what he covers up is that steel shipments did not decline, according to a study published in the American Economic Review last year. No, what changed was a new technology called the minimill. This meant that one worker is doing the work done by five workers 33 years before. Other studies have shown that there have been similar increases in productivity in other sectors, such as computers and electronics manufacturing. Even textile manufacturing, which was also said to have migrated out of the country, has been transformed in the U.S. into a high tech industry producing enormous amounts of expensive, specialty fabrics with few workers.

These transformations have meant that productivity in industrial production has increased much, much faster than other sectors, including services and construction.

No, it is not foreign competition that is taking U.S. jobs, but U.S. companies right here in this country. U.S. companies have further capitalized on these job losses by forcing those still working to accept lower pay, less benefits, longer work hours, less security–just in order to keep a job. So, rather than competing against foreign workers, workers are really competing against themselves. The more wealth workers produce, the poorer they get.

By all rights, the people who do the work should benefit from it. Rather than eliminate jobs, the work could be spread around, in order to work shorter hours, and get more time off, without sacrificing pay and benefits. But in order to do that, it will take a fight against the capitalists right here, and all their government flunkies, starting with President Donald Trump.