In her Feb. 4 Sunday Opinion column, “Haley deserves praise for calling out Trump’s awful tariff plans,” Catherine Rampell repeated the two costs of tariffs to a nation that many others have identified: They raise the price for both imported consumer goods and domestically produced goods, to the extent the latter are used as inputs in their production. Neglected is a third negative effect: They act as a tax on exports. When the tariff reduces the demand for imports, it also reduces the supply of a nation’s money to the foreign exchange market, causing the price of that currency to appreciate. Appreciation then raises the price of its exports abroad, causing trading partners to buy less. Recall that the Trump tariffs were especially burdensome to U.S. farmers. This is how markets retaliate. Trade partners don’t have to retaliate explicitly; the foreign exchange market will do it for them.
Donald Trump doesn’t understand how tariffs work
If the above is true, why has the United States had annual trade deficits since the 1970s? A popular explanation concentrates on nefarious trade practices by Asian countries. The above suggests that this cannot be the case. If it were, the market would solve this issue. A more compelling argument focuses on the fraction of a nation’s gross domestic product that is saved. High-saving countries tend to be capital exporters, low-saving countries capital importers. The United States tends to be in the latter category. Thus, the real yield on capital here is higher than abroad, and this is the cause of the trade deficit. Such a deficit will not be solved by trade impediments. Or, to paraphrase Shakespeare: The U.S. trade deficit lies not truly in our trading partners but in ourselves. We save too little.
Gail E. Makinen, Arlington
Three sentences in Catherine Rampell’s Feb. 4 column struck me personally. Those sentences were “Four separate studies determined that the costs of these tariffs were borne mostly or entirely by Americans in the form of higher prices. There’s also ample evidence that Trump’s trade wars hurt U.S. jobs. That’s because many of the things he tariffed were inputs that American manufacturers buy to produce their own goods.”
I am a boutique tent-maker in Virginia, using steel poles to hold up the canvas. The poles are made in China. When Donald Trump was president, he put a tariff on them, saying China would pay it. He clearly doesn’t understand how tariffs work.
The Chinese poles end up being sold to someone who imports them into the United States; this is when the tariff kicks in. The importer pays the tariff, then includes that amount when he sells them to an American wholesaler. The wholesaler ups the price and sells the poles to Home Depot. Home Depot ups the price and sells the poles to me. I make the tent, and I up the price and sell the tent to an American customer. My American customer ends up paying the tariff, plus at least four rounds of profit on that tariff. And my business is suffering because I have had to raise my prices quite a bit more than I would have otherwise, to cover the tariff and the rounds of profit on it.
Mr. Trump said China would pay the tariff. Funny thing: I’ve sold almost 1,000 tents and have never sold one to China, anyone from China or anyone named China. So, as happens all too often, Mr. Trump’s ignorance is hurting, not helping, Americans.
Coryn Weigle, Alexandria