Name: Fortune Explains: Tariffs and Trade Wars
Uploaded: 2019-07-23
Duration: 7 min 32 s
Description: How did we end up in a trade war in the first place?

Tariffs. Tariffs. Tariffs. Tariffs. Tariffs. It's hard to escape the talk of tariffs, which means we've also been hearing a lot about- The trade war. Trade war. Trade war with China. Trade war with China. The question is, who is actually being helped by these tariffs and who is being hurt? The trade war hurts them, doesn't hurt us. Our trade policies have been a disaster. Think it's great to air the other side. I come out and favor the tariffs. I'm one of those people who just doesn't get it mister president. We've rounded up an all- star team to help explain how we wound up in a trade war in the first place. [ MUSIC ] [ MUSIC ] Let's start with the basics. Okay, so a tariff is a tax on a good that's imported into a country from some other foreign country. So if you're Walmart and you're importing blue jeans from China, and all of a sudden you've got a 10 % tariff from that represents $ 5 on every pair of blue jeans. That's a tax you pay to the government and then you tack for $ 5 back on to the price so in effect it's a tax on consumers who buy blue jeans. When did countries start using tariffs. So tariffs date back to the founding of America and was a major source of funding for the government for centuries. And the primary rationale at that point in time Was to use the tariffs to generate revenue. Now, the objective is primarily to hurt an importing country and or to help one or more domestic sectors of the American economy. That's what we're seeing now. President Trump claims that the tariffs his imposing on imports from China In other news as well protect American manufacturers, American producers American agriculture. The President may see the tariffs he's imposed as a defense measure. But China sees them as an act of aggression. And that sparked our current trade war. How did this all start? Trade war is when one country imposes tariffs or tries to block exports from another country, and then the country that is being blocked responds and retaliates by imposing tariffs on imports into their country. And that's precisely what's happened between the US and China. I think a significant part of the Trumpian worldview is. Is we have a very, very large bilateral trade deficit with China. So simply put, the trade deficit is exports minus imports. They sell $ 540 billion to us and we sell $ 120 billion to them so that the The balance of trade is very, very lopsided in China's favor and this is the target that Trump has taken on. And this is the reason why we're now involved in a trade war. So President Trump obviously ran for office on a platform of strenthening the American manufacturing sector. And the primary means by which he's done this, as far as relates the trade, is imposing tarriffs On China, on European nations, China is by far the country with which he's had the most aggressive stances that relates to the implementation of tariffs. Okay, will all of these tariffs fix the trade imbalance? Trump's view is that trade wars that are effective tactic, that trade deficits are all bad, that surpluses are all good. And that, this blunt instrument that he's using carries which haven't been tried before by any previous administration in modern times will exert the pressure that is required on China to finally change these unfair trade practices and to shrink this deficit. But the problem with President Trump's approaches that even though he is right, in terms of the criticisms that he makes about China, he uses the wrong policy instrument to solve the problem. So he seems to think, he meaning President Trump, that just by letting tariffs on Chinese products, we're going to be able to teach China lesson and we're going to in his language win. This trade war with China. Well, that's just not gonna happen because the problems, they require structural changes in China. And those kinds of structural changes, the Chinese have simply been unwilling to make. Thus far. What structural changes would need to be made? The Chinese economic development model, the state controls virtually every aspect of what firms can or cannot do. It directs who can buy or sell, and in what amounts. Now contrast that with the approach that's taken in the United States and in most of the Western world. The government rarely gets involved in the activities of private enterprises. So what we really have is a clash of two economic systems. As things stand now, how is this all impacting Americans? The Federal Reserve has estimated that as a result of the trade war with China, American consumers are going to have to deal with an additional $ 800 in annual costs. And that's a lot of money for some households. There is no question that the biggest losers in this whole trade war are gonna be low income households. Because they tend to buy the inexpensive goods that the Chinese can make a lot less expensively then US producers can make. So let's do a quick review. The US has had a giant trade imbalance with China for a long time. President Trump wants to fix this, so he's implemented a lot of tariffs. Unfortunately, according to our experts, tariffs aren't an effective way to solve the problem. In the meantime, the tit for tat tariffs have grown into a full blown trade war, and that's resulting in higher prices for American consumers. So is there a way to cut trade deficits with China without causing American consumers or businesses more pain? I think a lot of economists believe that the real solution is to find a way to open the the Chinese market to US goods in ways that's never been opened before. The way I see it there is only one approach and that one chance is for the United States to engage in robust diplomacy Which the European Union and the European Union and the United States needs to put up a combined EU, US or North America front telling the Chinese that you know what? All of our firms are affected by policies that we deem are fundamentally unfair. So if you want to have A regime which is based on openness, globalization, with the free flow of goods and services, you better change the way in which you do business. The ultimate goal is not to leave these tariffs on for all time so that US consumers get hit. He wants to get rid of terrorists, at least that's his stated goal. So, In order to do that, you have to get the Chinese to buy more of our goods. This is a bipartisan issue, which will take significant amount of effort to resolve and it's not gonna happen because it's a only a republican or only a Democratic issue or only the creation Of President Trump. It's far deeper then that. [ MUSIC ]

Fortune Explains: Tariffs and Trade Wars

International

How did we end up in a trade war in the first place? 