Column: Trump tariffs help Michigan
President Trump’s proposed tariffs, especially as they relate to China, will be good for Michigan. The reciprocal conditions assumed by the classical model of comparative advantage and free trade simply do not exist. China steals our technology. We have allowed them to do it for decades. There may be a short term pain as China jockeys to maintain the advantages of its one-sided relationship with the United States. However, so long as Americans do not panic, the U.S. and Michigan will end up in a far improved position as a result of making our trade with China fair. China's position is already softening.
China buys $130 billion of goods from us. We buy $506 billion from them. Michigan’s auto industry shows the fallacy of the free trade argument. If Ford, GM or FCA wants to export a car manufactured in the U.S. to China, there is a 25 percent tariff; if a Chinese company wants to export one to the U.S. there is a 2.5 percent tariff. If a U.S. company wants to set up a manufacturing plant in China to avoid the tariff, it has to have a 50 percent Chinese partner and provide them technology access insuring the Chinese get our technology. If a Chinese company wants to setup or buy operations in the U.S. it can own a 100 percent interest and their intellectual property is protected.
This is not free trade. This is not fair trade. This is just stupid, especially in the era of mobility and autonomous vehicles.
Trade with China is not the only example of unfair trade policy hurting Michiganians. We buy $137 billion of goods from Japan. They buy $68 billion from us. We buy $118 billion from Germany. They buy $53 billion from us. The biggest imbalance is in automobiles. The jobs come right out of Michigan. The trade imbalance is not made up elsewhere globally as classical theory says it should. Not only do these countries benefit to the detriment of Michigan from the great imbalance of trade, they also are the beneficiaries of an American defense umbrella.
We pay 3.1 percent of our GDP in defense and protect Germany, and Japan with our military presence. We subsidize the pilfering of our jobs by allowing Germany to defy its treaty defense obligations to pay at least 2 percent of their GDP while they pay less than 1 percent. Japan pays almost nothing. The subsidy is $85 billion for Germany and $150 billion for Japan.
Trade wars would be a bad thing. But facts matter. All of these countries have far more to lose than to gain in any trade war with the U.S. The U.S. is being abused. We need to fix it. Michigan in particular is being abused because the imbalances in trade are greatest in automobiles.
Some argue the tariffs will really hurt Michigan agriculture. But China limits our grain, poultry and rice. Japan limits a broad range of our products such as rice, wheat, beef and dairy. Germany and the EU have a host of unfair practices which create a surplus in agricultural products with the U.S. Trade wars are bad; but it is highly unlikely, given the imbalance of benefits, a long-term trade war will actually occur. We have a lot more to gain than we have to lose. There will be short-term Chinese counter measures such as China’s announced tariffs on pork, fruits and nuts. There is also risk with soybeans and aircraft.
However, if public opinion, inflamed by press hysteria, does not force a quick retreat, American interests will win out because of the huge imbalances. Trump’s negotiations with South Korea recently realized substantial benefits for the U.S. economy. The negotiations with China, given American public support, should lead to even greater improvements for our economy.
The tariffs should also be considered in the context of global nuclear negotiations. Trump has stated that eliminating North Korea’s nuclear program is more important than trade concerns with China. North Korea has two lifelines to avoid the crushing impact of sanctions imposed against it: China and Russia. The trade tariffs were announced coinciding with a timetable for a meeting to discuss ending North Korea’s nuclear program between President Trump and North Korea’s dictator Kim Jong-un. The tariffs were announced with a substantial delay of at least 30 days.
The tariffs would be good for Michigan if they’re enacted. But they are unlikely to be enacted as currently contemplated. They may well be traded for China’s help in ending North Korea’s nuclear program. Trump, who the left continues to demonize as an idiot, as they did Ronald Reagan, is three steps ahead of everyone else. He is not only creating and protecting jobs with his tax cuts and trade policy he is setting the stage to save thousands if not millions of lives.
Michigan is making a comeback. But unfair trade policies are holding us back. The tariffs proposed by President Trump will be good for Michigan jobs and families by leveling the playing field. We've always known that you can't beat Michigan workers — it's time to give them the shot they deserve.
Sandy Pensler is president of Pensler Capital and a Republican candidate for U.S. Senate from Michigan.