Tariffs Are the Greatest

On October 23, the Carl-Schurz-Haus invited to one of its successful luncheon talks. Last December, Red Baron already reported on an exciting presentation on "Shielding Democracies from Hacking and Misinformation."

I recognized Bill Clinton on the invitation poster, but the following Twitter is that of the present POTUS.

"Without being well aware, Trump is bound in his ideas of international commercial trade to a reasoning from the Stone Age of economics," Oliver Landmann, professor of macroeconomics at the University of Freiburg, wrote.

Another excusable slip was the wrong orthography of Schurz on Professor Tim Krüger's introductory slide. Only in German, the "z" is sharp, so that, for pronunciation reasons, the French, too, must write quartz instead of simply Quarz as in German.

Professor Krüger started his talk by showing how structural economic change has irreversibly affected the States over the last 160 years. Agriculture has become economically negligible, while employment in the service sector is steadily increasing. Industrial production in the States leveled off during the 1960s and has declined since then.

Why is POTUS so excited about tariffs? Does he consider the decrease in employment in industrial production, as shown in the graphic above? Or is the reason for his excitement, "Ich sage nur China, China, China," the words our former Chancellor Kurt Kiesinger spoke as early as September 1969 while hammering with his knuckles on the speaker's desk.
*I only say China, China, China.

The trade deficit with China is indeed huge.

POTUS has accused the European Union of unfair trade practices, too. Indeed, I became uneasy when I read that American import duties on European cars are only 2.5%, while the EU charges a 10% tariff on car imports from the States. When those percentages were negotiated in the past, the 10% were instead intended to protect the European auto industry against car imports from Japan. In contrast, the US, with its big internal market for cars, did not care.

Professor Krüger's slide spoke for itself, but he then explained that the existing tariffs result from negotiations and compromises among trading countries within the framework of the World Trade Organization (WTO). In contrast, in an ideal world there would be no tariffs at all.

The US levies its highest duties on milk and milk products, pickups, sugar, and tobacco, ranging from 20 to 50%, while the EU imposes its highest tariffs on meat, increasing from 21% for chicken and 26% for pork to 67% for beef. Although agriculture contributes little to a national economy, it remains politically important. Nations must ensure their people are fed and, to this end, protect their farming industries.

When signing the previous WTO trade agreement, it still seems that the States were more generous, judging from the number of goods originating in the EU and imported into the States that were exempt from any duty.

The world economy is dynamic and developing rapidly. So international trade agreements are already obsolete upon entry into force. Updating existing treaties is tedious, particularly with many countries involved in the negotiations.

The WTO's Doha Development Agenda began in 2001 and was intended to update the existing trade agreement by 2005. But negotiations are still on, and there is no end in sight. This is why POTUS prefers bilateral deals. Indeed, although some punitive tariffs are already in force, talks between the US and China, resp. the EU are presently taking place.

Here are the basic principles of the WTO. They explicitly allow one country to impose punitive measures in cases of unfair trade.

However, it seems that the States should reconsider their punitive tariffs, as in the past they proved detrimental to the national economy, as shown on the following slide.

The impact of the 1930 Smoot-Hawley Tariff Act on the US economy
was eventually revoked by the Reciprocal Tariff Act of 1934.
Note the importance of midterm elections.

At the end of the talk - Red Baron, sitting as usual in the front row (5th from the left) for better listening and watching - had learned a lot, although he did not taste the luncheon lasagne but had a big plate of green salad instead.

©Carl-Schurz-Haus

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