When President Donald Trump made good on his promise to be “Tariff Man” this week, he sent economists into a lather, pushed the stock markets onto a wild and largely downward ride, and thrilled parts of his political base, who saw a president finally willing to use his bluntest policy weapon against America’s biggest economic rival. Trump claims that imposing as much as $60 billion in new duties on Chinese goods will hurt China more than it hurts American consumers. Both are quite likely to be hurt, at least in the short run. But the tariffs have an unexpected beneficiary as well, one that Trump is surely less excited to talk about. In an ironic twist, Trump’s tariffs might make Mexico great again.
The easy, and wrongheaded, pro-tariff argument made by Trump and his fellow China hawks is that when he slaps a tax on goods from China, it makes the good less attractive for companies to manufacture there and less appealing for consumers to buy here. That creates an incentive to make more goods in the United States. So, America wins, right?
But the reality is that America and China are both going to lose, and they aren’t haggling in a vacuum. There are dozens of players ready to swoop in to take advantage when two titans start wounding each other.
The entire network of production, with China as an assembly hub for parts sourced globally and shipped to the United States, has been the product of more than 20 years and trillions of dollars of investment. Changing that isn’t going to happen quickly. Companies can’t just snap their fingers and rejigger their supply chains overnight. The cost of abandoning them is many multiples greater than the amount of the tariffs, no matter who pays them.Read More
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