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GELFAND’S WORLD - Last Wednesday, Donald Trump stood up in front of the television cameras and told the nation that he was imposing something called reciprocal tariffs on the countries of the world. He held up a poster purporting to show tariff rates imposed by other countries on us. In response, he explained, we would be imposing rates at half those numbers on the very same countries. In this way we would reciprocate.
The argument was that we would charge them what they charge us, and in this way the United States would make the world right.
The problem with this exercise in Trump Logic was (as CityWatch and others explained last week) that those tariff numbers were not tariff numbers at all. They were, instead, a strange sort of fabrication. Trump claimed that they represented the sum of tariffs, currency manipulation, and non-tariff trade barriers.
In actuality, the numbers were just estimates of foreign trade deficits expressed as a percentage.
It was as apples-vs-oranges an argument as it was possible to make. Simply put, the "tariffs" were merely an expression of our inability to sell as much as we buy to China, Korea, etc.
We are told that what the president really wants to do is to undo the trade deficit that the U.S. runs, and he thinks that putting tariffs on our imports will accomplish this goal. Since tariffs are taxes charged by the federal government, they will also transfer money from the American people into the treasury.
We have to keep reminding ourselves that it is possible to have a trade imbalance with or without the presence of tariffs, and that low tariff countries can run trade surpluses simply because they pay low wages and can therefore make things more cheaply.
So one lesson is that these tariffs are not "reciprocal" at all. Countries like Mexico and Viet Nam are quite capable of exporting to the United States without needing to put high tariffs on U.S. imports. Whatever effects those Trump tariffs will have on the Mexican trade equation, there isn't much that is reciprocal, or even logical, about them.
All around the world, people are asking, "Where do we go from here?"
Let's ignore for the moment the response by the world's stock markets and consider the responses by some of those target countries. Viet Nam, for example, is said to have offered to reduce its tariff rates to zero. Other countries seem to be making similar offers, as you can read here.
Cabinet secretaries are acting happy about this, or so they would have us think. But we should discount those brags and consider what those foreign countries are really doing.
They are calling Trump's bluff.
It's simple enough. Those countries don't actually charge us the huge numbers shown in Trump's chart. They run positive trade balances with us because American consumers want to buy inexpensive products that they produce. It won't cost them much to reduce their tariffs on American goods. In exchange, they would require that American tariffs on their exports should likewise be reduced to zero.
Now that would be a real example of a reciprocal reduction.
But this kind of tit-for-tat round of tariff reductions would not change the balance of trade all that much. Why should it? The fundamentals wouldn't change -- you and I shop at Harbor Freight and Target and Dick's Sporting Goods and hundreds of other retailers which rely on foreign suppliers.
No, these offers are just a signal from those net-exporting countries that they are trying to protect the American buyer from the effects of the Trump tariffs and, in so doing, protect their own export industries. Overall, it is an attempt by poorer countries to protect the wages of their own factory workers.
An aside: How is the president himself reacting to the foreign offers? In effect, he said No. He actually said that foreign countries will have to pay us "a lot of money" to get the tariffs lifted, as you can read here. Apparently a tariff rate of zero is not enough under the new Trump rules. You might say that this is an admission by Trump that it's not about tariffs at all, but just an attempt to bully the world -- and the American economy -- into reverting to some fancied postwar economic situation in which the United States is once again the king of the world.
As of this writing, the American stock market continues to be down, with a little bit of ups-and-downs in the Monday morning trading. The markets are allowing themselves a little bit of hope that this whole episode is just some sort of weird negotiating tactic on Trump's part, while recognizing deep down that this is most likely a false hope.
I'd like to offer one more comment about the way that the media have been handling the current crisis. To their credit, the major tv networks have treated it with the seriousness that it warrants. There is one term, however, that I think is misused: Value.
For example, one wag over at DailyKos pointed out the following: If you were to tape five dollar bills together (end to end), the value lost in the stock market would be more than the value of a line of those fives going from here to the moon. It was an attempt to communicate something about the magnitude of a trillion (as opposed to mere billions).
But if the stock market represents "value," then how can it fluctuate so quickly and heavily? If there really were something called Value, then it ought not fluctuate so much and so fast. But it is legitimate to point out that the stock markets represent an opinion about values, and it is possible for that opinion to vary quickly as circumstances change.
We might even argue that the stock markets represent the best opinion about valuation at any given time. It's not a new idea, and has been stated numerous times previously.
But there is one additional point: The Trump tariffs by themselves damaged the real value of many things including the future gross domestic product (GDP) of many nations. That's because the GDP of, for example Viet Nam, is going to depend on its ability to trade, which in turn depends on its ability to export. So in this sense, the stock market crash that we have been watching since Wednesday represents a true, verifiable loss of value spread out over the entire world.
In his naive and bitter approach to life and government, Donald Trump is turning out to have committed an act of vandalism that is unprecedented. And while the fallout was raining down on the world's markets, he went off to play golf. That image of Trump in his golf cart should be shown next to the image of the Emperor Nero.
And one last thing that should be communicated as a whisper rather than a shout. It is possible that the federal courts can rescue us from Trump's insanity. After all, the Constitution gives the power to enact tariffs to the congress, not the president. Trump is relying on an old act of congress that gives the president the authority to take quick action in a true emergency. You can make a pretty good argument that the law in question does not justify Trump's recent actions. A lawsuit (filed by a couple of wealthy conservatives) may lead to a judicial order to overturn the Trump tariffs, and if so, that verdict would go to the Supreme Court.
Of course this will take time, and the damage will continue until a Supreme Court decision to shut down the Trump tariffs is reached. And we don't know when or if that will happen.
(Bob Gelfand writes on science, culture, and politics for CityWatch. He can be reached at [email protected])
