Trump may appear right to punish China with tariffs for its numerous trade practise agreement breaches as on face value it’s hard to see what other options are available to him. Thus he brags, as is his un-Presidential wont, that he’s taking effective action, unlike his wimpish predecessor Obama who attempted change by diplomacy.
But here’s the problem. Trump’s tariffs don’t directly cost China a penny, rather their expense is solely borne by American consumers and paid to their government. As is the nature of all governments dealing with free (other people’s) money, they will waste much of this windfall.
China will bear an indirect cost in presumably selling less goods to Americans, given their tariff-induced reduced spending power. All of this applies equally to Chinese consumers because of China’s counter tariff measures on American imports.
So the question is, who’s the winner? It’s not hard to answer. There are no winners. Obviously Chinese and American consumers are worse off with their reduced spending power, so too both nations’ exporters with their reduced buyer markets. And while the tariff proceeds go into the Chinese and American governments’ pockets, they too are worse off. Why? Because these measures hit economic activity with a consequential reduced tax take and higher welfare outlay. In short they are dumb.
So what is the answer to making China play fair? Think about it long enough and you get back to Obama’s maligned diplomacy. Ultimately it will prevail. The Chinese are not ogres and will succumb to reason. But even if they don’t and China persists with it’s variety of unfair practises, it is it’s own people who are the main losers.
We had a parallel situation back in the late 1980s when our greatest economic reformer Roger Douglas, removed tariffs on imports. Everything became much cheaper. Everyone was better off. But the cry soon arose that many countries importing to us had tariff barriers to our exporters. Unfair cried the shallow-minded. In fact we weren’t the losers, rather the tariff barrier countries were.
An excellent example is the Warehouse. I’ve long held the view that Stephen Tindall with his Warehouse chain has done more for low-income folk than any other New Zealander. I’m staggered when I study their full-page advertisements and see the incredibly low prices on clothing and other items. Children’s leather shoes for example, at $8. When I was a kid in post-war working-class New Zealand it would have taken my father, a welder, two weeks wages to buy me a pair of shoes. Thus everyone went bare-footed except for mid-winter, up until secondary school.
To this day China imposes, in some cases quite hefty tariffs on some of our exports, such as a 30% on processed timber. But we’re still better off trading with them as reflected by the Warehouse and its multitude of largely Chinese imported goods.
Much the same can be said about the sale of land to foreigners, particularly those nations, invariably Third World, which naively prohibit foreigners owning their land. Complaints that foreigners are buying up our land is a constant cry.
First , it’s not our land, rather it belongs to one of us and whether owned by a foreigner or a local has no adverse effect on anyone. It remains private property.
Second, foreigners are not Martians; they’re people and do us all a service bringing their cash here. If every farm in the country was sold to a foreigner we’d all be immensely wealthier with such a massive influx of cash which inevitably would feed into the wider community. Meanwhile, exactly as before, we’d indirectly reap the benefits of the farmers’ export earnings.
The other cry of complaint is selling businesses to foreigners and the profits going off-shore. This is repeatedly said of our largely Australian owned Banks.
If allowing that was a bad deal we would never have permitted it. Bank credit is critical to economic success and Banks which are part of much larger foreign institutions have much greater access to capital.
In a perfect world there’d be universal free-trade and no restriction on business and land ownership. As I alluded to earlier, the most restrictive countries are invariably the poorest and the wealthiest are the most open. Draw a conclusion.