By Steve Levy
There’s plenty of opportunity to politicize the tariff issue, but this is serious stuff that requires a sober, objective analysis as to the direction our nation should take in charting its economic future.
Let’s take the polarizing Donald Trump out of the picture for a moment. Put in place any president of any party you desire in the Oval Office today. What is the tariff position you would like to take?
There really are four different roads to travel.
The first is the status quo. Yes, doing nothing would retain stability — at least in the short term. And, yes, it would keep inflation lower for the time being.
The second path is to create tariff reciprocity. That is seeking a free, but fair trade. That could mean striving for zero tariffs, but if Germany tariffs our Cadillacs and Fords so much to prevent them from being sold within their borders, we would even the playing field by doing the same for their BMWs and Volkswagens.
The third path is to levy major tariffs across the board to not only go well beyond reciprocity, but create incentives for American companies to manufacture most of our consumable products in an effort to grow the working class.
And then there is perhaps the most important road to take: isolating China, and eliminating our dependence on this political, and potentially military, enemy.
The idea of keeping the status quo is terrible. Yes, in the short term, we will avoid volatility and keep prices somewhat lower. But this option basically surrenders to the idea that we are so risk-averse that we will allow ourselves to be taken advantage of by other countries that tariff us to the hilt and steal our technological patents simply because they know they can get away with it.
Our nation tolerated foreign tariffs after World War II because countries such as Japan, Germany, and the rest of Europe were decimated by the war. We looked the other way as they tariffed our products to incentivize industrial development to reboot their economies. But that was three-fourths of a century ago. Germany and Japan have become economic megapowers. Europe has been able to implement a massive welfare state due to their unwillingness to fairly contribute to their own defense and their unfair trade practices that bolster their production at the expense of ours.
Doing nothing also maintains us on a suicidal path by remaining dependent on China’s production and good graces. We saw during Covid how an emboldened China gave veiled threats that, if we push them too far, they would stop exporting pharmaceuticals that save American lives. Outrageously, our asleep-at-the-switch leaders have allowed us to be at a point where the vast majority of our needed pharmaceuticals are now imported from other nations. It’s especially scary when you consider some of these nations, including China, are our ardent enemies.
Steel and computer parts are also essential for American infrastructure and defense capabilities.That’s why we were so supportive of the CHIPS Act that passed in the Biden administration, though that was just a drop in the bucket and didn’t go nearly far enough.
China just brazenly admitted last week that they were engaged in espionage in seeking to hack our water systems so that they can shut off our water supply, or possibly poison it, upon the first outbreak of war with them. Now why would they feel so brazen to do so?
It’s because they know we’ve become paper tigers, and are intolerant of any kind of significant short-term fluctuation in prices or in the market.
So they keep spying on us, stealing our information, manipulating their currency and preventing our products from gaining access to their market.
Is this the path we want to remain on?
Yes, the status quo will provide short-term stability, but it is a long-term path to self-destruction.
The 90-day pause on tariff implementation gives us the opportunity to strike a deal with our free allies to open markets amongst ourselves, yet freeze out China. It’s something that I espoused in my book Solutions to America’s Problems in 2020.
China’s economy has grown exponentially, but when we combine America’s GDP, which is still the world‘s largest, with the European Union, Australia, Japan, and South Korea, we dwarf that of our enemies in the Chinese Communist Party. We can fight China with guns and missiles, or we can do it economically while we still have the strength to do so.
So if we agree that China must be marginalized and tariffs are the way to do it, the next question is do we beef up all tariffs, as some have suggested in order to spark domestic production in all areas of the economy, or do we take a more measured approach that would center on reciprocity and promoting fair markets throughout the globe, with a goal of lowering tariffs.
We believe that, as noble as it might be to try to raise tariffs on everything, thereby creating incentive for all our products to be made in America, it is highly unrealistic that this could work in our era. In a different century, foreign markets did not have the same kind of access to our shores as they do today. And production in America was not nearly as costly. Even if we raised tariffs, many producers will be reluctant to manufacture here because of high labor, health and tangential costs, as well as undue regulations, bureaucratic delays and environmental restrictions.
Thus, thinking we can become totally self-sufficient is a pipe dream. However, a tariff policy that isolates China and then opens up markets in Europe for our cars, in Australia for our beef, and in Canada for our dairy products, for instance, will mean that production will increase here in America as those markets become accessible to many of our highly desirable products.
It’s the middle ground that seems to make the most sense.
Since the triggering of the tariff war a few weeks ago, the European Union, for all its barking, has said that they’re willing to sit down at the table and even go to zero tariffs between the two regions. This is a golden opportunity. Let’s open up more trade amongst the free world while we isolate the bad actors, primarily China, and decouple our investments with this rogue, criminal nation.
For decades, pundits and officials from both sides of the aisle squawked about the unfair trade practices that we face, but few were willing to actually try to do something about it. The reasons for that reluctance are obvious. The opposition party will demagogue, the press will destroy you for raising prices and adding to volatility. The American public, which is very now-oriented, is not as willing to sacrifice for the long game as they once were. That’s why it’s so important to couch this issue in terms of national security.
In World War II, when we knew we had an existential threat on our hands, the American people banded together, and were willing to sacrifice in the short term for the long-term survival of our nation.
China presents the same type of threat to our future. We can continue to do nothing about it and claim that we’re doing the right thing by avoiding short-term volatility, or we can get serious and be willing to endure a short period of disruption so that we can bring back a greater sense of fairness and order to the world economy, while preventing us from remaining dependent on a country that wants to wipe us from the face of the earth.
Steve Levy is Executive Director of the Center for Cost Effective Government, a fiscally conservative think tank. He served as Suffolk County Executive, as a NYS Assemblyman, and host of “The Steve Levy Radio Show.”