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Tariffs Threaten President Trump's Economic Boom

President Donald Trump has steadfastly exceeded expectations with regards to the economy. Unemployment is at its lowest level since April 2000, the stock market is still at unprecedented heights, home sales are strong, consumer confidence levels are at their highest in nearly two decades, and companies are expanding their operations within the U.S. (and paying their workers more).

The economy is so good that even the liberal New York Times acknowledged that they "ran out of words to describe how good the job numbers are" in a recent headline.

President Donald Trump

President Trump's success with economic matters comes from his Reagan-esque, laissez-faire approach to the markets. He has swept away costly Obama-era regulations, which generally ran roughshod over the principle of checks and balances as well as the rule of law and ultimately hurt the economy. The speed at which this Trump-led deregulation has occurred represents nothing short of a capitalistic miracle.

Meanwhile, President Trump signed into law a large tax cut and reform bill, the Tax Cuts and Job Act of 2017, which reduced the tax burden for small and large businesses alike. As shown by the aforementioned economic numbers, the benefits of the legislation are already evident: The tax cuts at the top are trickling outwards through the U.S. economy.

Considering all of President Trump's economic priorities (and the miraculous effect that they are having on the economy), it is obvious that he has an understanding of the absolute need for separation between government and business in a flourishing free-market society.

That being acknowledged, why is Trump betraying his sound economic judgement by embracing the big-government credo of the protectionist movement?

Some argue that Trump is merely trying to right the injustices perpetuated by our global trading partners. This hypothesis is fair, for China -- the world's biggest trade predator -- has wantonly committed intellectual property theft, subsidized its domestic industries, and levied such trade barriers that its domestic markets are nearly impenetrable.

Unfair trade practices aren't just a Chinese phenomenon, either. Even the European Union (EU), a bloc aligned with U.S. interests, subsidizes Airbus at the disadvantage of Boeing.

So, it is apparent that not everyone has the same free-market ethos as the U.S. However, it is also clear it is clear that Trump is not attacking the issue from the right angle.

If the president was concerned about Chinese companies violating U.S. patents and the Chinese government stealing U.S. manufactory data for its own purposes, Trump would simply sanction the hostile actors. Such measures would go a long way, effectively prohibiting them from tapping into the U.S. banking system and completely blocking them off from U.S. markets.

Instead, Trump levied sanctions on two Chinese products largely outside of the sphere of their normal violations: steel and aluminum. With the EU, Trump didn't even touch Airbus, instead punishing the same metal industries as he did with regards to China.

The metal tariffs currently on the table make little sense from the perspective of Trump righting wrongs. He would be better inclined to directly address the enterprises that routinely violate trade laws, which for the Chinese are within the manufactured products sector.

Additionally, even if Trump were attempting to punish trade violators, he would be better off avoiding duties on raw products like steel and aluminum. They are integral components of finished American consumer goods, which are the U.S. specialty more than raw products are.

By raising costs for raw products, Trump is taxing U.S. companies, who now must increase their investment in each completed manufactured unit. These losses are not recoverable on the open market (unless, God forbid, companies raise costs for American consumers).

In summation, it is clear that Trump is not attempting to clear up injustices that sprout from bad trade practices. He is penalizing the wrong products and hiding behind tariffs when he should be using more direct tools -- such as sanctions along with litigation in the World Trade Organization (WTO) -- to redress the U.S. grievances.

With this in mind, what else could the president be attempting with his tariffs? Is he trying to simply bring trade partners to the negotiating table so that they will reduce trade deficits?

This hypothesis has more currency than the argument that he is trying to rectify wrongs. Trump has consistently espoused his belief that trade deficits are bad, especially taking offense with the $375 billion imbalance between the U.S. and China.

In addition, Trump has explicitly stated that he wishes to reduce our trade deficits through the bargaining chip provided by protectionist tariffs, clearly embodying the "use your leverage" recommendation contained within The Art of the Deal.

However, even considering the president's past statements, the question still remains: Does Trump really see tariffs as a means for negotiation, and are they actually an effective strategy for attaining good trade deals for the U.S.?

Well, instead of gathering allies to express a united front against Beijing, Trump has alienated the EU with his proposed tariffs on their steel and aluminum. Additionally, Trump pushed away a group of Asian countries allied behind Chinese mercantilism by pulling out of the Trans-Pacific Partnership (rather than simply renegotiating the terms that bothered him).

The president, by indicating little interest in gathering a basic coalition to back up his measures, makes it unclear whether he aims to negotiate-by-tariff.

In addition, judging by China's recent admission that they will not negotiate with the U.S. while held at tariff gunpoint, Trump has proven that his protectionism package isn't strong enough for China to bother reworking their trade relationship with the U.S.

Such a statement would typically indicate that the incentives for a deal (in this case, tariffs) should be reworked or scrapped altogether, but the president has not wavered. He has maintained his tariff package even amid calls that it will be ineffective in attaining a better arrangement for the U.S.

Therefore, if the president is actually interested in negotiation, there is no evidence of it at this time. China has rebuffed Trump's advances, only indicating that they will raise tariffs on U.S. goods (instead of reducing barriers).

Additionally, even if the president were able to negotiate a reduction in the trade deficit, he is attacking the issue from the wrong angle. Import-export imbalances, although ominous in appearance, aren't the gremlin of trade, and approaching negotiations with the aim of slashing these deficits will not address the structural issues with U.S.-China trade.

If Trump cared about arriving at a good deal (as opposed to playing zero-sum games with the Chinese), Trump would lead by example and nudge China towards removing some of their protectionist barriers.

As opposed to the Chinese coordinating government purchases of U.S. goods (as Trump as encouraged), this agenda would establish some semblance of a free market in China. Demand for U.S. goods would develop naturally from that point on (rather than artificially under President Xi's stewardship).

With it being obvious that Trump doesn't really see duties as a tool for constructive negotiation, only one credible explanation for the tariffs remains: The president is attempting to express his protectionist instincts and campaign agenda through his trade policy.

Despite his free-market whims, Trump has a deep-seated (although archaic) devotion to the ethos of protection. As shown by his statements as a candidate and as president, he misguidedly believes that restricting foreign imports will uplift their U.S. competition, delivering a pay raise for every Rust Belt worker.

For example, in July 2016, Trump said,

I have visited the laid off factory workers and the communities crushed by our horrible and unfair trade deals. These are the forgotten men and women of our country and they are forgotten, but they're not gonna be forgotten long. These are people who work hard but no longer have a voice. I am your voice!

However, the reality of tariffs is starkly different from the 18th-century view elucidated by Trump. Far from helping U.S. industries, protection only makes U.S. goods more expensive and uncompetitive, leading to decreased revenue and job losses across the board.

Even now, at the very beginning of the Trump trade regime, the old logic has been proven correct. For example, in an April 2018 Business Insider article, it was reported that "Trump's tariffs on steel, aluminum, and other imports are slowing hiring in manufacturing-heavy states," a reversal from the boom in manufacturing jobs earlier in the president's tenure.

Ultimately, it is clear that by instituting devastating tariffs, Donald Trump isn't intending to punish China or push them into accepting a new trade regime. Instead, the president wants to use protectionism as a vehicle for "protecting" American industry, an old mercantilist concept that has been devalued as junk economic theory.

Instead of implementing big-government, anti-free-market mechanisms like tariffs, Trump should continue on his path of bureaucratic reform, deregulation, and tax reduction, all of which naturally loosen the restraints on U.S. economic growth.

Mr. President, let's send a strong message to trade predators through sanctions, not tariffs, and return the concept of protectionism to where it belongs: the dumpster bin of failed anti-free-market economic policies.