Aug. 1, 2019



With President Trumps recent announcement concerning tariffs on China many of you are questioning his strategies. Perhaps we need to step back and place things into perspective.

I always tell my students that trade sanctions, of all types, are self defeating over the long run. This would appear to fly in the face of the principle of “Trade through comparative advantage”. Therefore, as might be expected, I am not a proponent of tariffs. However everything has an exception.

In this case it appears President Trump is intending to use relatively short term tariffs to gain a negotiating advantage. If successful, America will  benefit over the long run by having a fair  trade pact negotiated.

So, let’s look at the situation. Most people will immediately say,” how can he start a trade war with such a big trading partner”.. They fail to realize that size isn’t necessarily  the same as a large trading partner.  Actually Canada is a larger trading partner than China.

Let’s view this from the administrations perspective. China has a population of approximately 1.43 BILLION individuals. They are providing for the population with a GDP of approximately 14.2 Trillion dollars. NOW compare that to the U.S. with a population of approximately 327.2 million and a GDP of over 21 Trillion.

So, the theory is that a nation the size of China with a GDP of that size has to rely on ALL available markets and can’t afford a trade war. In a protracted face off the U.S. holds all the cards, IF, the administration can withstand the blowback from those not in  the position to correctly see the potential benefit. 

On the other hand IF the U.S. and China come to  an equitable trade agreement the U.S. will recognize long term returns and China will  stabilize a necessary trading partner.

OH! One little side note. Nothing will cultivate Nationalism and deflate the global initiative any better than a good trade war. This will have effects on every modern economy and make then acutely aware of their various “advantages in trade”.

Grumpy thinks this is a political tactic NOT an economic one. The only question is,”Will China bring a knife to a gun fight”.