Prior to the Trump administration, the United States was a firm advocate of global trade. Free
trade was the call of the day. The thought process was that if we were free and fair with our trade
partners, then they would be free and fair with us.
Well, that didn’t necessarily happen. Countries always have (and to some extent always will)
protected their local industries and workers, it just wasn’t talked about as much and/or it wasn’t as
big of a deal. President Trump came into office with a different idea of trade. His plan (that he is
trying to put in place) is to use tariffs to gain an advantage in signing trade deals that benefit the
United States and our workers.
Tariffs are taxes that are placed on goods that enter a country. They make overseas goods more
expensive. This could drive companies and consumers to purchase locally manufactured products. In
the case of a global supply chain, tariffs can alter a supply chain away from a country that has had
tariffs imposed on it.
But at the end of the day, tariffs raise the cost of everything that they touch. The end consumer is
the one who is punished the most. Since the United States is the largest consumer in the world, tariffs
make a direct impact on the American consumer. That is why the United States has historically been
an advocate of free trade. Politicians have understood that higher priced products are not in
America’s best interest.
So why is President Trump doing this? He is looking beyond the short-term pricing impacts and
trying to drive proper behavior of our trading partners in the long-term. Over the past decades, our
trade partners have taken advantage of our free trade position to lower barriers to their goods while
imposing barriers to ours. In the case of China, they have required U.S. companies to divulge
corporate secrets in order to have access to Chinese markets. Simplistically, President Trump is
looking to impact long-term behavior of our trade partners by taking some short-term pain. Let’s
hope that the economy can weather the bumpy ride.