Trade wars are good, and easy to win?

Byline: Muhammad Hassan

Trump seems to believe that tariffs are an end unto themselves because they are bringing wealth into the country by forcing China to pay billions of dollars into the U.S. Treasury.

An escalation in tariffs is likely to increase uncertainty, slow down business investment and increase unemployment, and ultimately drag on growth. But it might also raise prices; the cost of the tariffs so far has been passed through to U.S. consumers.

Trump has credited his previous tariffs with bringing Beijing to the table, but China has retaliated by slapping tariffs on U.S. agricultural products. Those tariffs and other retaliatory levies from the European Union, Canada and Mexico have sent economic shock waves through communities that helped Trump secure his 2016 victory. But these latest round of negotiations broke down, and then Trump responded by more than doubling existing tariffs on $200 billion of Chinese imports, from 10 percent to 25 percent. He has also threatened to add tariffs to an additional $325 billion in Chinese goods that aren't currently taxed.

Trump has two goals; the first is to reduce the United States' huge goods trade deficit with China, which was $419 billion in 2018 and, most economists discount the importance of this. If the deficit declines through temporary purchases of China from the United States, the effect may fade with time.Trump's second goal is more significant. It is related to the concerns regarding the theft of U.S. intellectual property and trade secrets by China, forced technology transfers, competition policy, access to financial services and currency manipulation. Here, the talks have failed. Addressing his belief that tariff will transfer wealth from China because foreigners pay the tariffs he has been imposing. Over the course of 2018 Trump imposed tariffs on about 12 percent of total U.S. imports and economists from Columbia, Princeton, and the New York Federal Reserve released a paper, 'The impact of the 2018 trade war on U.S. prices and welfare,' and it concluded that foreigners paid none of the bill, U.S. companies and consumers paid all of it and the losses to U.S. consumers exceeded the revenue from the new tariffs, so the tariffs reduced American welfare overall.

These price hikes led to substantial changes in behavior. Imports of the tariffed items fell sharply, partly because consumers turned to domestic products, but also in large part because importers shifted their sourcing to...