High Tariffs Won’t Fix US' Structural Disorders

The odds are that the US trade protectionism will go further, no matter who wins in the forthcoming November presidential election.

You do not have to be an expert on international markets to see that with its sheer size and its links to other economies, the policies of the US have a significant impact on the world.

However, suppose that the Biden administration or its Republican opponents do not really care about the future of the global economy. Suppose that the US leadership views international trade exclusively through a zero-sum lens, believing that it could and should make full use of its privileged position in the world in order to extract maximum concessions from partners without offering much in return. Can the US achieve affluence and prosperity at the expense of its partners?

The available data shows that it cannot. Higher tariffs do not really help balance the US foreign trade. The most recent data available indicates that in April of 2024, the US trade deficit widened to $74.6 billion, which is the largest monthly increase since October 2022. Looking ahead, the prospects for lowering US trade deficits look dim: Deloitte's baseline forecast predicts that imports will increase 3.1 percent on average in 2024, while exports will rise only by 2.4 percent. Not a particularly bright upshot for the four-year rule of the Democrats!

Instead of trying to shift problems from a sick head to a healthy one, the US leaders should meticulously conceptualize and consistently implement a long-term re-industrialization strategy that could once again unite the divided nation around common goals and aspirations. This is exactly what Franklin D. Roosevelt did in the 1930s to combat the Great Depression and to give Americans a sense of a common goal and social justice. A renewed social cohesion rather than high tariffs should make America great again. It seems that today neither Joe Biden nor Donald Trump is ready to come up with the next edition of the New Deal calibrated to fit the realities of the 21st century. Let's hope that the incoming generation of US political leaders will fill this gap before too long.

One of the prime tools of the US economic strategy these days is foreign trade tariffs. The country that used to be a resolute champion of free trade is now very persistent in protecting its domestic markets from foreign competition. The explicitly protectionist approach to international trade goes back to at least the Donald Trump administration and it has continued throughout the current Joe Biden administration. China remains the main, though not the only, target of this strategy.

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Over the last three and a half years, Biden has maintained most of the tariffs imposed earlier by Trump on Beijing, including the existing tariffs on more than $300 billion worth of Chinese goods. Though the most recent May 2024 tariff hikes were relatively modest in their overall size, targeting only $18 billion worth of Chinese imports, these restrictive decisions affected a number of strategic sectors like electric vehicle (EV) batteries, computer chips and medical products.

The odds are that the US trade protectionism will go further, no matter who wins in the forthcoming November presidential election. The apparent assumption in the White House is that since the US remains a lucrative market for all US trading partners, eventually these partners will have to yield to demands coming from Washington. It is indicative that the Biden administration, exactly like its Republican predecessors, does not rely on multilateral trade mechanisms like the World Trade Organization to sort out US trade problems. Moreover, it would not be an exaggeration to argue that Washington acts as a spoiler on many WTO-related matters.

You do not have to be an expert on international markets to see that with its sheer size and its links to other economies, the policies of the US have a significant impact on the world.

However, suppose that the Biden administration or its Republican opponents do not really care about the future of the global economy. Suppose that the US leadership views international trade exclusively through a zero-sum lens, believing that it could and should make full use of its privileged position in the world in order to extract maximum concessions from partners without offering much in return. Can the US achieve affluence and prosperity at the expense of its partners?

The available data shows that it cannot. Higher tariffs do not really help balance the US foreign trade. The most recent data available indicates that in April of 2024, the US trade deficit widened to $74.6 billion, which is the largest monthly increase since October 2022. Looking ahead, the prospects for lowering US trade deficits look dim: Deloitte's baseline forecast predicts that imports will increase 3.1 percent on average in 2024, while exports will rise only by 2.4 percent. Not a particularly bright upshot for the four-year rule of the Democrats!

The global economy in the 21st century is highly interconnected and interdependent and it is clearly not a zero-sum game. If the US government forces American businesses stationed in China to leave the country, in most cases these businesses are not likely to relocate back to the US. Instead, they prefer to move to other geographical destinations, where the investment environment looks more attractive than it does in the US. Infrastructure decay, inferior vocational training quality, excessive costs of legal services, poor work ethic, numerous political uncertainties and many other domestic problems and shortcomings, rather than unfair foreign nations' trade practices, are at the core of the poor health of the US economy. The real wages in the US economy have been stagnant for decades, the social inequalities are sharply increasing, the productivity growth is slowing down and even the life expectancy is declining.

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This is not to write off the US as a formidable superpower with huge potential. Still, even a true friend of the US would find it hard to deny that the nation is not in its best shape these days and that launching trade wars is not an appropriate remedy to its multiple structural disorders.

Instead of trying to shift problems from a sick head to a healthy one, the US leaders should meticulously conceptualize and consistently implement a long-term re-industrialization strategy that could once again unite the divided nation around common goals and aspirations. This is exactly what Franklin D. Roosevelt did in the 1930s to combat the Great Depression and to give Americans a sense of a common goal and social justice. A renewed social cohesion rather than high tariffs should make America great again. It seems that today neither Joe Biden nor Donald Trump is ready to come up with the next edition of the New Deal calibrated to fit the realities of the 21st century. Let's hope that the incoming generation of US political leaders will fill this gap before too long.

First published in the Global Times.