Trump’s Impulsive Tariffs

I applaud President-elect Donald Trump’s proposals to cut the corporate tax rate and reduce regulation on business, especially smaller businesses, on whom they are most burdensome. His impulsive statements about tariffs are a different matter.

Donald Trump Warns of 35% Tariff For Companies That Move Abroad

"Despite the Carrier deal, the company still plans to close a plant in Huntington, Indiana, moving about 700 jobs to Mexico."

This plant makes microprocessor-based controls for the heating, air conditioning and refrigeration industries, i.e. parts that are probably used in the plant that Carrier is going to keep in Indiana. So what does Trump believe the tariff should be imposed on? And wouldn’t it be a cost for the plant that Trump claims to have helped save?

Further, suppose a foreign company, e.g. Honda or Toyota, has plants in the USA. The company with good economic reasons decides to replace a plant or part of it with one in another country. So legislation signed by Trump imposes a 35% tariff on the company's goods coming into the USA. The parts issue is pertinent again. Also, foreign businesses might wonder, "If I build a factory in the USA, what happens to me in the future if I want to relocate or merely shift part of production elsewhere? I don't want to take that chance. So I think I'll pass on building that new U. S. plant [and creating more American jobs]." (Hat tip to Gralee for this point.) Does that sound great for Americans in general?

Trump has threatened to impose tariffs on imports from China because he feels that the Chinese have stolen American jobs. He has ranted against the USA’s trade deficit with China. But imports from China aren’t solely made in China.

“On trade, although the headline data shows China accounted for 50% of the U.S. trade deficit last year, that number gives a highly distorted view since around 37% of those exports consist of imported parts, mainly from Japan, South Korea and Taiwan, according to Deutsche Bank Chief Economist Zhiwei Zhang. In value-added terms, he calculates, China accounted for just 16% of the U.S. deficit, slightly ahead of Japan and Germany.

        A trade war with China, Mr. Zhang notes in a report, “would be a war against all participants of the global supply chain, including U.S. companies.” Link.

Indeed, Almost Everything Trump Says About Trade With China Is Wrong.

Consider tariffs on a smaller geographic scale. Suppose a USA company wants to shut down a plant in state X and move production to far-away state Y. So the government of state X imposes a 35% tariff on goods shipped from a new plant in state Y back to customers in state X. Would Trump as President approve that tariff? (It's probably illegal, but I'm only questioning a principle.)

And why not a similar principle -- a 35% tariff on all imports? Oh, I get it. Trump companies import a lot of stuff.

Of course, imposing tariffs creates a host of other problems, e.g. higher consumer prices, enforcement, and retaliatory tariffs. Effects outnumber intentions here.