So is this the “Art of the Deal”?

Harold Black, PhDBlog

There are many inscriptions over the doors of the congressional buildings. However, the most important one is missing. It is “Abandon hope all ye who enters here.” The reason being that no congress – and no president – is serious about limiting the rate of growth in federal spending. The latest episode was when the president signed the budget bill and then admonished the congress for being so profligate. The president sought to hold back a meager $15 billion – which is not even a rounding error – and the republican controlled senate refused to endorse it. It is as though the budget, the looming entitlement crisis and the national debt are just inconveniences and not serious problems. It is a shame that this president is so hawkish on trade and not on government spending. In fact, he wants to expand the budget with spending on infrastructure while his imposition of tariffs on our allies threaten to offset the gains in the economy from deregulation and tax cuts.

I don’t know what the end game is with the imposition of tariffs. Justifying the tariffs on aluminum and steel on national defense grounds is laughable since we get most of ours from Canada. Despite NAFTA, Canada imposes tariffs on US lumber and dairy, but the US also imposed duties on Canadian lumber and dairy products and runs a surplus in dairy. Those items could be negotiated without threatening our neighbors to the north who have been one of our staunchest allies. If the US steel mills do not produce metals vital to national security, then the government could simply subsidize them to do so. The president has also threatened our European allies and talked of imposing a 25 percent tariff on German automobiles. The Germans in turn have offered to lower its tariffs on American automobiles to zero if the US would do the same and lower its 25 percent tariffs on German trucks. Thus far the White House has been silent. While the narrative from Washington is that the US is facing tariffs inhibiting free trade, the fact is that the US also imposes tariffs on many of its exported goods. In fact, data from the World Bank show that the US imposes on average higher tariffs than Canada, Japan, Australia and many European countries including Germany. Moreover, even if tariffs went to zero, it would not mean a level playing field since many goods are heavily subsidized by governments, most notably US agricultural products.

Most observers note that the main problem is not with our allies but with the Chinese. At the heart of the issue is the theft of intellectual property when firms enter into agreements with the Chinese. That problem could be dealt with head on with the assistance of our allies who face the same problem. Yet the imposition of tariffs on Chinese goods is the wrong way to attack the problem. Not only is it a stupid clumsy policy akin to using a meat cleaver to perform delicate surgery, it does not address the issue of intellectual property theft.

It has been estimated that the imposition of tariffs on the Chinese and on our allies will ultimately result in over 450,000 American jobs lost. This president is trying to bludgeon our trading partners into lowering their trade barriers through threats rather than negotiation. This is especially strange coming from the person who espouses the art of deal making. The end result may be a world wide slowdown in economic growth and an end to the remarkable surge in US employment.

Dr. Harold Black is professor emeritus at the University of Tennessee, Knoxville. This piece appeared in the USA TODAY NETWORK – TENNESSEE.