A Conservative Look at the Trump Tariff Policy by David Montgomery

Editor’s Note. The Spy is pleased to welcome David Montgomery back as a contributor. When the Talbot Spy launched in 2009, David was one of our first political columnists—widely read, often provocative, and a thoughtful voice for socially conservative views. Well before his move to Talbot County, David was a respected figure in Washington, D.C. as he built his reputation as a lead economist at the Congressional Budget Office and later as a private consultant. His work on federal spending models and his successful advocacy for California’s cap-and-trade policy have impacted national environmental and fiscal policy. In his return to the Spy, David will focus on the economic challenges of our times.

I am now more puzzled than ever by the goals of President Trump’s tariff policies. He is now reducing tariffs on China in exchange for China’s offer to reduce tariffs and open its markets to US businesses.  He has announced ongoing negotiations with some 80 other countries to reduce tariffs on both sides.  China is looking like just another trading partner that has tariffs higher than ours.

There are three textbook objectives that might be pursued through tariff policy. They are strategic, retaliatory, and protectionist.  

Strategic tariffs are directed at specific countries and or industries which are deemed to be critical to national security. Thus, the United States should be reducing its reliance on China for certain rare minerals.  Likewise, any components for warfighting equipment that are now sourced from China should be switched to domestic suppliers.  This objective has always been a legitimate purpose for tariffs, but they should be selective and high—or just a ban on imports.  I thought China was the target of strategic tariffs, and I never questioned that such tariffs were in general needed. When it comes to implementing that policy, the specifics of how rapidly we could disengage our supply chains from Chinese sources needed to be considered before setting tariffs arbitrarily high.

Now it appears that we are treating China just like Europe and other countries on which we set retaliatory tariffs‚ that is, tariffs designed to match the tariffs imposed on us by our trading partners. The goal in imposing such tariffs is not necessarily to shrink trade, rather it is to put US industries on an equal footing with industries protected by tariffs of our trading partners. That is a fine objective and beneficial to both countries. The very high tariffs that Trump imposed initially seemed to have brought many countries to the negotiating table. 

If we can achieve a mutual reduction in tariffs and trade barriers with allies, articularly Europe, Japan and Korea, it will benefit both countries.  There will be more demand for goods from US industries that have been priced out of protected markets, and our trading partners will get goods for their consumers at lower cost than they could produce domestically.  That outcome could also help with our broader goal of improving manufacturing wages and output.

So now I am puzzled.   What is our objective for managing trade with China?  The current dramatic reductions suggest that the President is not pursuing a strategy of reducing trade with China for strategic reasons, he was just threatening them to get them to line up like Europe and other countries to reduce their barriers to trade. That, or this is a purely political move to deal with the stock market carnage that the high tariffs produced.  

I really hope that Walmart has not won again on this one. We do need to disengage from trade with China on goods like strategic minerals and electronics. We might not need 145% tariffs on all Chinese goods but we certainly need even more on some. 

That also lets me touch briefly on the third reason for tariffs, which I characterized as protectionist. These are tariffs designed to protect specific industries and encourage their growth here in the US. Protectionism goes further than reducing barriers to exports, though that helps.

I can enthusiastically support economic policies that are designed to recreate the traditional American family. That is, whose objective is to make it possible again for one man to provide for his wife and multiple children on one income, so that the nuclear family headed by a wife living at home, can once again become the norm. 

The plan articulated by JD Vance is that the manufacturing sector, and with it jobs that do not require expensive college education, must expand to provide that kind of income to families. I doubt that current scattershot tariff policy, or even a combination of policies likely to be implemented in this administration, would be sufficient to achieve this goal. I have a lot more hope that it could all be put together in eight years of a JD Vance administration.

The start toward this goal is protective tariffs, either for the manufacturing sector as a whole or for particular industries, not just large enough to overcome the advantage that countries like China have due to cheap or, in China’s case, forced labor. Tariffs on China probably should be 150% or more to achieve this goal–Robert Lighthizer recommends 200 to 300%–in order to increase both wages and output in US manufacturing.  Unfortunately, the same economic reasoning applies to South Korea and Japan. On top of that, protection would have to be applies to many more carefully chosen sectors to greatly improve the economic status for couples that are struggling to find a way to buy a home, have children and raise them well. Anyway, this beguiling part of the Trump economic plan has not been visible in any of his specific moves on tariffs.

So I am puzzled about what the 40 or 60 or 80 current negotiations on tariffs are intended to accomplish. In the case of China, the only serious antagonist with whom trade, we seem to be abandoning the strategic objective in favor of convincing China to eliminate tariffs and other barriers to exports from the US (a tiny fraction of imports from China) while doing nothing to reduce the flow of goods to the US from China. 

In any event, I doubt that any agreement to open China’s markets is enforceable. China has had thousands of years to figure out how to cheat on any agreement. The opacity of China’s economy means it could find ways to block US investment and exports, even after agreeing to everything that President Trump might demand.  It’s not even “trust but verify” with China. It’s more like “never trust because it’s impossible to verify”.  If we do perceive that US companies remain unable to sell in China, the tit-for-tat response would be to return to the 175% tariffs of a week ago. That at least should gain some strategic benefits, and might be implemented through incremental increases that give supply chains time to adjust.

We may or may not gain any tariff reductions out of current negotiations with China.  Just going into these negotiations to mutually reduce tariffs makes me doubt whether the current round is intended to reduce our strategic vulnerability on China. By reducing tariffs across the board we have given on the effort to shift specific supply chains with national security significance out of China is now being treated as just another trading partner with whom we are working things out. 

I’m also not seeing any efforts toward the goal that appealed to me, which is renewing good jobs that will support the old-fashioned family with all its social and moral benefits.  

Getting back to my introduction, it is not clear what objective President Trump is pursuing in the current trade negotiations.  

David Montgomery was formerly Senior Vice President of NERA Economic Consulting. He also served as assistant director of the US Congressional Budget Office and deputy assistant secretary for policy in the US Department of Energy. He taught economics at the California Institute of Technology and Stanford University and was a senior fellow at Resources for the Future. He currently serves as councilmember for Ward 3 on the Town of Easton Council.