Let's be honest, we all know Donald Trump isn't the smartest or the most honest. And at this point, it's exhausting trying to follow all of the harm he's causing because there's fires sprouting up everywhere 24/7. Sometimes, it's just easier to see what's trending on Twitter and follow that rabbit hole until all of a sudden you're on your third gossip channel's video about a Youtuber you don't even care about. And when we do follow the issues involving Donald Trump, it's usually the ones that have the media in a frenzy and have dazzling, clickable titles.
Needless to say, the trade war with China is not one of them.
It sounds boring as hell, so it obviously isn't getting much media attention. On top of that, unless you're studying these types of things like me, it's very unlikely that you have any interest in clicking on a link about tariffs, and I don't blame you. I myself don't understand why I enjoy things like that, but here we are. The issue is, because it seems boring, people aren't looking into it and Trump is pretty much getting away with it. So, I'm gonna get into what's actually happening from an economics perspective. It's not as juicy as James Charles vs. Tati Westbrook, but it sure is affecting you and me a lot more than their social blades.
It all started because Trump doesn't understand trade at ALL. I'm sure you've heard the rhetoric: We're losing so much money to China!!! We have a trade deficit and that's awful!! They're robbing us blind!!! We are losing in the current trade deal!!!
The issue is, none of that is true. First, no matter who is benefiting more in the trade deal, no one LOSES. Maybe one country's benefits are proportionally greater, but both countries MUST be benefiting to make it worthwhile. Otherwise, the trade wouldn't happen. End of story.
Also, yes we are in a trade deficit! That is true. But guess what, Trump, the majority of strong economies get trade deficits kind of by default. A trade deficit doesn't mean we're losing money. It just means that we are importing more than we are exporting. Whether you import or export more goods literally depends on what's cheaper for you. When your economy is booming, your prices are higher than the prices of other countries. And if I'm an American business and I need supplies, I want to save money and buy them from the cheaper country. That's just better for my business. If this happens throughout the country, the country will have a trade deficit. This means the businesses in the country was simply BETTER OFF and SAVING MONEY by importing goods instead. We were never bleeding money, just saving it.
Then his dumb fear about trade made him do an even dumber thing. He placed tariffs on certain goods that America imports from China. The idea was simple. If Chinese goods become more expensive, we'll say the hell with China! We'll make the goods ourselves and buy them from our own businesses and show China who's boss! PLUS, we'll be getting "billions of dollars" from China due to the tariffs that we can give to our businesses! Easy peasy.
And let's be real, that sounds great. The only problem is, that's not how it works. What he's actually doing is pissing off one of the biggest countries in the world and hurting Americans at the same time.
To start, a tariff is a tax that AMERICAN BUSINESSES have to pay when they import goods from China. America pays this fee, not China. Hear that Trump? America. The good ole USA. Not only that, but obviously our businesses don't like paying it, so what they'll do is raise their prices in order to make up for it. That means WE as consumers have the burden of these tariffs. Those billions of dollars that we're supposed to get? Yeah that's not coming into our pockets, it's coming out. He's just making everything more expensive.
Also, tariffs create this thing called deadweight loss. I won't go in detail, but basically it just means that tariffs limit the amount of production and consumption that COULD have happened, which is bad for everybody. This isn't exactly the huge increase in business that he was promising. Now, I will say that in theory, it is true that we'd buy less from China. This is because the tariffs make their goods more expensive. And this could potentially hurt China and benefit us to some degree, if we have to produce more domestically. But A, it wouldn't actually make that much of a difference. And B, that's only if China just rolled over and let us do that. And China's kind of a badass, so they're not gonna do that. They threw tariffs right back in our faces. And that's even worse news for us.
So to recap, so far we have American consumers paying tariffs, American businesses paying more money to get supplies, we've got deadweight loss, and now we have these NEW tariffs to deal with. This means that even in a scenario where we're able to make more domestically, China's gonna buy even less of our goods because they're smart and don't want to pay that extra fee. Producing more goods is great, but if you don't have more people buying them, it does nothing.
It's not only interfering with trade. Some people are sensing what's happening and know it's bad news, so they're getting nervous about the future economy. Thus, a decrease in consumer confidence is occurring and people don't feel as great about putting their money into something risky, like stocks. So, we've see that the stock market has taken a big dive, which is just the cherry on top of this whole thing. And there's other implications too of course, but I think we've listed enough to show this thing isn't good for anybody. Ironically, if our economy were to really start plummeting from different factors, our prices would plummet too, making it cheaper for people to buy our goods, rather than their own. This could finally get rid of that trade deficit that Trump hates so much, hurray.
Basically, it's a whole mess that was set in place to fix a problem that doesn't exist, and is making everything worse in the process. Even if it doesn't seem that catastrophic at first glance, but it doesn't take a ton to start our economy down a slippery slope and make things worse for everyone involved. And almost no one is talking about it. That has to change.