As the Trade War Nears its End, it is Unclear what was Gained

Soon after President Trump took office, he waged a global trade war against nearly all of the United States’ trading partners. With US Trade Representative Robert Lighthizer at the helm, the US has placed unprecedented tariffs on imports from all over the world and has withdrawn from and changed major trade deals including the North American Free Trade Agreement and the Trans-Pacific Partnership. The most notable example of this has been the trade war against China which has lasted nearly two years. On January 15th, President Trump and President Xi signed the first phase of an agreement set to end the conflict, which will likely be hailed as a victory by the President. Is it really, though? 

President Trump has argued for years that the United States has been taken advantage of by China in trade. He largely cites the significant goods and services trade deficit, which was over $300 billion in 2018. A trade deficit is the gap between imports and exports when a country is buying more goods or services from other nations than it is selling to them. The United States’ trade deficit has largely been caused by government spending, a growing economy which increases consumerism, and a strong dollar, which makes goods more expensive abroad and therefore leads to a decrease in US goods being purchased. While a deficit can be problematic, most economists agree it is not necessarily a bad sign, nor should it be used to measure an economy’s health. 

Even so, the Trump administration has sought to reduce the trade deficit substantially through high tariffs on Chinese goods, which effectively serve as a tax on the American consumer who is purchasing such imports. China quickly retaliated with their own tariffs. This sort of back and forth has carried on practically since the trade war began, resulting in tariffs on an increasingly broad scope of goods. 

The President has not been afraid to brag about the success of this trade war. He has tweeted frequently about the tariffs he is planning to implement, the success of the United States economy, and the revenue the Treasury gains as a result. However, the claim that the United States is “taking in billions” from the tariffs is a lie. Tariffs serve as a tax on the consumers in the country implementing them; Americans are paying the US government billions, not China. Various reports have emerged over the last year estimating the costs of the trade war: a Moody’s Analytics study estimated 300,000 jobs had been lost by September of 2019, while another report estimated the total cost to consumers is as high as $831 per household per year. 

Both the agriculture and steel industries have been targeted by the Trump administration, and have been significantly impacted by the trade war as a result. Imports on steel are down, which would normally be a positive sign for the American steel industry. However, prices are plummeting due to overproduction in the US. The steel industry is inefficient and troubled, but tariffs don’t serve as a remedy. The agriculture industry, though, is where the trade war has truly hurt.

A significant portion of the business of American farmers in Iowa, Missouri, and other regions in the US has been through exports to China in recent years. Although President Trump in October claimed China never imported more than $16 or $17 billion worth of agricultural products, the figure actually peaked at $26 billion in 2012 and hovered above $20 billion until Trump enacted tariffs. In 2018, agricultural exports to China fell precipitously to less than $10 billion. To stop the bleeding, the federal government has given over $28 billion in bailout funds to farmers. To provide comparison, that is more than double the auto bailout after the 2008 financial crisis. The farmer bailout has also not been approved by Congress, unlike the auto bailout.

The trade war has affected numerous industries as tariffs were steadily raised and applied to an increasingly wide range of imports. It finally appears to be reaching its end though. On January 15th, President Trump and President Xi signed a deal that is set to be part one of a two part agreement to finally bring the conflict to an end. So, does the deal make up for the losses of the last two years?

The deal signed in January includes provisions to deal with intellectual property theft and other business-stealing tactics that China has been inflicting upon American companies for years. Those provisions are certainly a win for the US. While many of the tariffs were eased, $350 Billion in tariffs are still in place as an enforcement mechanism for the other aspects of the agreement. Ultimately, whether the deal is successful depends entirely on China following it. Trump has threatened to raise tariffs again if China violates the agreement, which would probably reignite the trade war.

When part two of the final agreement is negotiated and signed (no date has been chosen yet) it will become more clear whether this trade deal was worth it. So far, it has not been fruitful for the United States. Billions of dollars have been lost as Trump has spent his whole first term ripping up trade deals and slapping tariffs on trade partners. This strategy has yet to prove very successful, but time will tell.

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