WHY TRUMP'S TARIFF PUSH IS DUMB
Although I said i'd write on happier things, I'm drawn to another tale of economics currently developing.
Its ominous sounding term, one that brings up thoughts of a stark divide. Whether it should or shouldn't be built isn't the point of this entry. Rather it is how it is intended to be paid for which is going to be examined.
Trumps promise to "make Mexico pay for it" hasn't seemed fruitful thus far, and it appears unlikely that the United States will get a lump sum payment to cover the cost of the wall. Trump knew this, the American voters knew this, Mexico knew this.
Why then does Trump continue to make Mexico pay for the Wall? To put it simply what has been proposed by Trump is a tariff on certain Mexican made goods. The basic economics of this is sound enough, Trump is engaging in protectionism to deny Mexico their largest market, force American citizens to look elsewhere for imports and hence push Mexico into paying for some if not all of the wall through a concerted economic effort.
The Problem.The problem with protectionism is that it is by far from efficient, everyone loses out in the long term, not just Mexico, but also the United States who lose a source of cheap imported goods. Furthermore introduction of tariffs can lead to retaliatory measures taken by Mexico. A similar situation occurred before the great depression with the introduction of the Smoot-Hawley tariff in 1930- ostensibly to protect American industry and labor from cheaper overseas markets was followed by similar tariffs around the world, choking trade and whilst not being the causal factor for the great depression, it definitely made it worse.
Why It's Dumb.
Trumps combative stance on the economy was clear during his election campaign, promising to keep jobs in America, as well as helping the faltering motor industry, something which no doubt helped him in the rust belt states and played no small role in his election to presidency.
With American recovery from the GFC still slow, it is important for all countries around the globe to work together, trade together and grow prosperous together. This combined with Trumps withdrawal from the TPP, it has me hoping that he will not set off a huge trade conflict that hurts the still sick world economy.