Trade Deficit And Tariffs: It Is Complicated

President Donald Trump’s announcement that he is instituting tariffs on imported steel and aluminum came as a surprise to some although reducing the trade deficit was one of his campaign promises. Dealing with the trade deficit issue is a complicated one since no one factor impacts trade. What is complicating a necessary discussion at the moment is the vitriol in which President Trump’s tariff proposal is being discussed. For example, the media repeated commentary that the market would collapse once President Trump signed the tariff executive order; yet the S&P 500 Index closed almost .50% higher today.

Some believe the trade deficit is harmful while others think it is not problematic. Today’s economy is a global one and ‘free’ trade is likely to be a policy that results in the strongest rate of global growth. However, free trade needs to be ‘fair’ trade as well. Today, Tesla’s Elon Musk replied to one of President Trump’s tweets that raises the issue of ‘free’ versus ‘fair’ trade.

Do you think the US & China should have equal & fair rules for cars? Meaning, same import duties, ownership constraints & other factors.

— Elon Musk (@elonmusk) March 8, 2018

For example, an American car going to China pays 25% import duty, but a Chinese car coming to the US only pays 2.5%, a tenfold difference

— Elon Musk (@elonmusk) March 8, 2018

Also, no US auto company is allowed to own even 50% of their own factory in China, but there are five 100% China-owned EV auto companies in the US

— Elon Musk (@elonmusk) March 8, 2018

I am against import duties in general, but the current rules make things very difficult. It’s like competing in an Olympic race wearing lead shoes.

— Elon Musk (@elonmusk) March 8, 2018

We raised this with the prior administration and nothing happened. Just want a fair outcome, ideally where tariffs/rules are equally moderate. Nothing more. Hope this does not seem unreasonable.

— Elon Musk (@elonmusk) March 8, 2018