Trump’s tariffs have failed. Biden is OK :: Investor.bg

The US president is unlikely to admit the failure of his favorite economic weapon. Photo: Bloomberg

With the presidential campaign entering its final phase, Donald Trump will certainly try to highlight his economic achievements. But the numbers do not speak well of his policies. Unfortunately, the approach of his rival Joe Biden threatens to make some of the same mistakes, writes Noah Smith for Bloomberg.

Trump was elected in 2016 with a promise to restore US competitiveness, revitalize the waning industrial sector and reduce gaping trade deficits. But even before the pandemic, his trade war seemed decidedly unsuccessful.

Despite a long list of tariffs imposed mainly in the second half of 2018, the US-China bilateral trade deficit has barely moved, if at all.

The same goes for the overall US trade deficit, which has not changed much since the end of the previous recession. Imports remained at their level in 2018 and 2019, but so did exports.

Nor did the American factory sector experience a renaissance. Industrial production grew along with the entire economy before Trump launched his trade war, but has stagnated ever since.

Tariffs simply failed to do the job that Trump and his advisers, such as economist Peter Navarro and salesman Robert Leitheimer, had hoped. They may have affected the Chinese economy to some extent, but at the same time harmed American consumers by failing to achieve any of their main goals: reducing the trade deficit, increasing US competitiveness vis-à-vis China, and restoring American industry.

Why didn’t it work? Intuition shows that tariffs make imports more expensive, encouraging local consumers to switch to domestically produced goods. Exports are not taxed, so they should not be affected. According to this logic, tariffs should reduce the trade deficit and domestic producers should receive support from all consumer demand directed at them.

Theoretically, exchange rates could be adjusted to erase most of the effect of tariffs, but this does not seem to have happened in the US – the strength of the dollar, and specifically that against the yuan, changed very shortly after the start of trade. war.

So technically, it is possible that Trump’s tariffs worked as intended, but their effect was simply suppressed by other, much larger forces to the detriment of the economy. After many years of tariffs, we might see a slight positive effect on the trade balance and industry.

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