Friday, May 10, 2019

What did Donald Trump do today?

He got even more confused than usual about what tariffs do.

With the latest round of trade talks with China imploding, Trump spent much of his day on Twitter insisting (over eleven tweets throughout the day) that nothing was going wrong and that it was all according to plan.

In particular, he seemed to be trying to say that the tariffs had been good for farmers:

(N.B.: Trump is not the "all time favorite President," coming in 12th out of the last 13 presidents at this point in his term since modern polling began.)

It's a little hard to parse this, in part because Trump's understanding of what a tariff is in the first place is usually shaky at best. But he appears to be saying that the round of tariffs that went into effect today were aimed at forcing China to "help out."

This is exactly backwards, as today's plummeting agricultural prices demonstrated.

In reality, when Trump started the current trade war last spring, China responded by reducing farm imports from the United States. This caused the price of soybeans and other crops to fall through the floor, sparking a wave of farm bankruptcies.

Soybean prices fell even further today on expectations that China would retaliate further.

It's worth considering Trump's other tweets on the subject today to understand how badly he has misunderstood the situation. He wrote:

Talks with China continue in a very congenial manner - there is absolutely no need to rush - as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S.... ....The process has begun to place additional Tariffs at 25% on the remaining 325 Billion Dollars. The U.S. only sells China approximately 100 Billion Dollars of goods & products, a very big imbalance. With the over 100 Billion Dollars in Tariffs that we take in, we will buy..... ....agricultural products from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance. In the meantime we will continue to negotiate with China in the hopes that they do not again try to redo deal!

That is not how tariffs work.

There are a lot of mistakes here, but one central one: tariffs on foreign goods are taxes paid by American consumers, not foreign governments.  The money coming into the "Treasury of the U.S." is ultimately coming from the pockets of Americans in the form of higher prices, passed on by Chinese exporters. That means any money to bail out farms crippled by the trade war—money that Trump has promised but not much delivered on so far—will also come from American taxpayers.

Why does this matter?

  • A president who can't or won't understand basic economic concepts is unfit for the job.
  • A trade policy that relies on other countries' willingness to "help out," instead of acting in their own best interests, is a dangerously stupid policy.