Chinas recent announcement that it will impose a 179 percent tariff on U.S. sorghum exports is just the latest salvo in the on-again-off-again escalating trade war between the Chinese government and Trump administration. Unfortunately, each time either side fires a shot, both sides lose.
In early March President Trump tweeted that trade wars are good, and easy to win. But nothing could be farther from the truth. Tariffs hurt exporters in the targeted country, of course. But in doing so, they also hurt the people who use the exported products in the country imposing the tariff. Both countries become poorer in the process.The Chinese tariff on sorghum illustrates how both countries lose from trade wars. U.S. producers annually export an average of $1.5 billion of sorghum to China. The 179 percent tariff would nearly double the price of U.S. sorghum in China relative to other countries, like Australia, that China could import from, effectively cutting off all U.S. sorghum exports to China. Some of that U.S. sorghum will be exported to other countries, but losses to U.S. growers will still amount to hundreds of millions of dollars.
Chinese citizens use sorghum to feed livestock and to make baijiu liquor. Theyll import sorghum from other countries to make up for some of the 6.9 million metric tons they have been importing from the United States, but it will be more expensive than the pre-tariff American price. As a result, Chinese consumers wont consume as much livestock and booze, and what they do consume will be more expensive.
Similarly, the tariff Trump placed on steel last month will harm Chinese steel exporters, but it will also make steel more expensive in the United States. That will harm all U.S. businesses that use steel in their production processes and ultimately lead to higher prices for consumers here.
Confused language surrounding trade deficits often keeps people from seeing how tariffs make both countries worse off. President Trump claims trade wars are easy to win when a country (USA) is losing many billions of dollars on trade with virtually every country it does business with. And if the U.S. has a deficit with a country, he continued, and they get cute, dont trade anymorewe win big. Its easy!
Except were not losing billions of dollars on trade. Were gaining from trade because the trades are mutually beneficial. U.S. citizens buy Chinese products only when they believe those products make them better off. And Chinese companies sell them those products only because doing so makes the companies better off. If the government enacts policies so that they dont trade, no one wins big. Everyone loses.
Last years record $375 billion trade deficit with China doesnt change the mutually beneficial nature of trade between citizens of the countries. U.S. citizens didnt lose $375 billion to China. We Americans imported $505 billion in Chinese goods that improved our lives. In exchange we sent Chinese citizens $130 billion worth of valuable goods. The $375 billion difference was financed by Americans selling Chinese citizens stocks, bonds and other assets or taking out loans.
Sending Chinese citizens assets rather than goods in exchange for what we import does not imply that the U.S. loses from trade any more than Americans lose from trade with domestic automobile dealers when they take out loans or sell a stock to buy cars. Buyers expect to benefit from the trade regardless of where the money comes from. Trade with China is no different.
Trade wars are lose-lose because each country must hurt itself to hurt its opponent. The only way to win a trade war is to never fight it in the first place. Its time to end this war before it escalates further.