Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

Trump on Trade & Tariffs: Separating Fact From Fiction

Posted August 27, 2019

Amid the recently concluded G7 summit in Biarritz, France, President Trump imposed new tariffs on China, called that nation’s president an “enemy” (then days later, a “great leader”) admitted “second thoughts” on the escalating trade war, reversed course hours later to say he only wished he had raised the tariffs higher, and then vowed a deal would be coming soon — because China wants one desperately, he claimed, although Beijing notably declined to confirm this.

As one report put it: “Day by day, even hour by hour, his approach to the trade war with China, the most consequential economic conflict on the planet, veered back and forth, leaving much of the world with geopolitical whiplash.”

Looking to make sense of recent moves by the administration and some of the more contentious statements made by the president concerning various trade issues that have roiled markets, left investors on edge, and economists scratching their heads, freelance business journalist Martha C. White did an excellent job sorting fact from fiction in a piece published yesterday at NBC News.

White refers to Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, to provide an explanation for why the “reason for the trade war keep shifting,” which according to this free trade advocate is that “In order to leave those facts [i.e., inconvenient economic realities about the impact of trade wars and tariffs] aside and keep the story going, the rhetoric keeps changing,” de Bolle said. “Because it’s not really based on facts and evidence… the narrative shifts.”

With this view in mind, White examines four key assertions that economists and trade analysts widely agree don’t stand up to scrutiny, that we briefly summarize here.

Ban on Doing Business in China

President Trump claimed last week that he could declare a national emergency and issue an edict forcing American-owned companies to stop doing business with China entirely.

The reality, however, is far less certain and would be “hugely disruptive to American workers and firms,” according to one expert with the Brookings Institute, who notes that while some production can (and already is to an extent) shift to lower-wage countries in S.E. Asia or even Mexico, it remains a small amount compared to China. Accomplishing the goal of totally isolating China in this way would be “difficult and costly.”

Putting aside that such a move appears to be a clear abuse of the International Emergency Economic Powers Act of 1977 and would unquestionably be fiercely litigated in the courts for years, one professor of international finance warns that, “Presidential orders to stop doing business with China could well erase all of the progress that the U.S. economy has made in recent years.”

Furthermore, owing to the complex nature of global supply chains no longer dealing with China could result in companies scrambling to find adequate substitutes — particularly in cases such as, for example, highly specialized manufacturing required for advanced electronics or medical devices, where no alternate sources may exist — that would probably lead to lower quality, higher costs, or both, say experts.

Re-shoring U.S. Manufacturing

In recent days, Trump has escalated his oft-repeated call to bring American manufacturing “home”... but in reality, as White points out, “the United States doesn’t have the kinds of factories, supply chains, infrastructure or labor to replicate the vast majority of what American companies import.”

In addition to the challenge of finding workers in an already tight labor market, she also draws attention to the problem that would be faced by U.S. manufacturers “that don’t have domestic options for many of the components or inputs they source from China.”

As noted in a recent Bloomberg article, manufacturing is likely to remain offshore because “there are simply too many incentives for companies to continue to produce and source in every corner of the globe — from the abundance of cheaper workers to technological capabilities and changing patterns of consumer spending.”

Who Pays for Tariffs

President Trump and other White House officials such as key trade advisors Peter Navarro and Larry Kudlow continue to insist that China is paying for the administration’s Sec. 301 tariffs, despite almost every other economist adamantly disagreeing with this claim. In fact, new calculations from JPMorgan found that if the new tariffs set to be imposed in September and December take effect as planned, they will cost the average American household $1,000.

Administration officials point to the fact that consumer spending as remained robust and in this respect, the president boasted recently that American consumers were “rich” and “loaded up with money” after having been given “a tremendous tax cut.” Except analysis looking at the impact of the tax cut on the economy fails to support this claim generally speaking, and indeed, a study published by the Federal Reserve earlier this year found that 39% of Americans don’t have enough cash on hand to cover an unexpected $400 expense.

Stocks and Economic Performance

“My Stock Market gains must be judged from the day after the Election, November 9, 2016, where the Market went up big after the win, and because of the win. Had my opponent won, CRASH!” Trump tweeted on Sunday.

President Trump hasn’t been reticent about making it known he views the stock market as the ultimate barometer of his success helming the U.S. economy, but despite hitting some record-breaking numbers, in truth, markets have only risen by 10% a year since Trump’s election, roughly 2% less than the growth rate under his predecessor during his first term. Moreover, some of the gains made so far, have been eroded by uncertainty caused by the administration’s protectionist trade policies. So far this year, amid some ups and downs, the market has largely stalled.

Last week, Trump accused the media and economists of conspiring to cause a recession, an argument that experts dismiss for various reasons, not least of which is the lack of consensus about the timing and inevitability of a possible recession.

But Wait, There’s More...

Subsequent to White’s piece, President Trump added to the list of questionable statements made recently about trade when before departing the G7 summit, he fielded questions from the press corp in a “freewheeling” exchange during which, according the Washington Post’s fact-checker, the president “made numerous false, misleading or inaccurate statements on a variety of issues.”

Among matters where Trump departed from actuality, was his familiar claim that “China has been taking out of this country $500-plus billion a year for many, many years — many, many years.” In his fact-check, Glenn Kessler points out that: “Trump consistently inflates the U.S. trade deficit with China. It was $380 billion in 2018, $337 billion in 2017 and $309 billion in 2016, according to the Commerce Department. Notice that it has continued to grow under Trump.” Kessler then wearily chides, “As we often note, countries do not make or lose money on trade deficits.”


Sign Up for Trade News, Compliance Updates and More