Throughout the presidential race in 2016, I was baffled and disappointed to see that both candidates were against proposed free trade policy. As an economics student, I believe that the benefits of free trade far outweigh the few negatives. Donald Trump’s recent steel and aluminum tariffs are not good public policy. They protect a select industry in the United States, harm the majority of Americans and are a foreign policy disaster for our country.
The object of a tariff is to make foreign goods more expensive so that domestic producers can be more successful. In the case of the proposed steel tariff, Chinese steel can be sold in the United States at a lower price than American steel. The proposed tariff will raise the price of Chinese steel in the United States so that firms are more likely to buy American steel. This tariff protects American steel producers from foreign competition and will benefit them greatly. However, the tariff hurts American consumers because the price of goods that use steel will go up.
This seems like a simple trade-off at first glance. Producers will gain and consumers will lose. However, American producers that use steel in their products, like manufacturers, will now have to pay higher prices for the steel they use. This will drive up their costs and, for those who export their goods, will make them less competitive in the world market.
A tariff may be useful to protect an infant industry a young firm that could be competitive if it could drive down costs, but at the moment cannot grow due to foreign competition. In this case, a country may institute a tariff until the firms in the young industry can be competitive. Once this happens, the tariff should be removed and all firms should be allowed to compete. The United States does not show the potential to be competitive on the world stage, so this tariff only gives it a temporary viability that will disappear if free trade is ever instituted.
These tariffs are also intensifying tensions between the United States and China. Before Donald Trump, the trend in global politics was globalization and cooperation. Trade barriers were being removed so that countries could export what they excel at and import what other countries make better.
This specialization is more efficient than every country trying to produce everything that it needs. Also, free trade encourages cooperation and good relationships between nations. If they are involved in trade, countries are far less likely to engage in war. Tariffs are kind of like an attack on foreign producers.
If a tariff is put on a foreign country, a common retaliation is for the tariffed nation to respond with a tariff of their own. China has already threatened the United States with tariffs on cars, grain, pork and many other goods. Not only has this tariff harmed the average American consumer and many American producers, but it has incited a trade war that will further harm American producers.