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(4 minute read)
By Rick Amato
A largely misunderstood and under reported story is that of Donald Trump’s use of tariffs as a tactic to grow American jobs and the economy. If the same strategy and early results had occurred during the Barack Obama years, the mainstream media would have labeled the former President a “brilliant, intelligent, global tactician”. But as former CIA agent and Whistleblower Kevin Shipp recently said, ‘too often the mainstream media has an agenda that has little to do with real news’.
Which brings me back to the use of tariffs. If you listen to the news then you believe that Trump is either a racist (with the threat of tariffs against Mexico), colluding with Russia (threat of tariffs against the European Union) or simply unstable and volatile (in the case of Canada). And just for good measure as a Capitalist who supports trade barriers, a hypocrite. But the facts and early developments don’t support these agenda-driven narratives.
Let’s start with why so many free market economists who normally oppose trade barriers at all costs are now supporting Trump’s tariffs. Their reasoning can be summed up in one word: Leverage.
While the initial reaction of countries who are the target of tariffs may be one of anger and defiance the fact is they have little or no leverage over America on the issue of trade. Long term we hold all- or most- of the cards.
* The U.S. trade deficit with China is at a record high of $375 billion.
* U.S. trade deficit with the EU is $147 billion.
* U.S. trade deficit with Mexico is $63.6 billion.
* U.S trade deficit with Canada is $12.1 billion.
Unlike previous presidents from both parties who either didn’t know or didn’t care Trump understands that America has all the leverage it needs in the trading relationships with our partners. What are they going to do? Buy less American goods? They’re already doing a bang up job of that with their own use of high taxes and tariffs on U.S. made products. Hence the trade deficits they now enjoy.
A growing number of free market economists concur that the tariffs with create short term pain but long term gain for the U.S. economy. Surprisingly we are already beginning to see the early returns of the long term gains. Example:
* While the EU response was initially one of anger, they have now backed-down and agreed to trade concessions in hopes of avoiding a trade war.
* Largely ignored by the U.S. media is the recent meeting between Mexico’s Secretary of Economy, (Mr. Ildefonso Guajardo) and Trump trade representatives last week in D.C. Both countries emerged from the meeting upbeat and cautiously optimistic about our near term trade future. So much so that President Trump declared a policy of ‘zero tariffs with Mexico’ was within reach. Of course closely watching all of this is Canada the third leg of the stool in NAFTA.
China however is believed to be a longer term play with more strategic elements to consider given their aggressive economic and military global goals. But once again their leverage options too are limited.
During the 2016 presidential campaign voters from both parties gave Donald Trump high marks on the issue of the economy and it looks like the President is about to prove them right. But don’t expect too many in the media to take notice.
Click below to watch my TV interview with CNN Economic Analyst Stephen Moore on Trump’s trade tariffs and the most recent Jobs Report.
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