With no sign of a trade deal between the U.S. and China in sight, amid growing rumblings of a recession, a business owner and macroeconomics expert recently spoke in Bryan about why he believes current U.S. trade policy focused on tariffs is fundamentally flawed.
According to B. Walter and Co. President Scott Buehrer of Wabash, Indiana, who has 30 years of experience in direct relationship with U.S. trade policy and holds an MBA from Duke University, it’s a matter of elementary economics.
Buehrer’s 131-year-old company offers modern services to the steel industry (laser and plasma cutting, stamping and forming, robotics, welding, etc.) Steel is the industry at the heart of the trade conflict between the two nations, though it’s since spilled over to a myriad of other areas.
“There are two epic battles of our time right now. One is the U.S. vs. China; the other is conservatism vs. liberalism,” said Buehrer, speaking Friday to the Bryan Rotary Club. “And we’ve got to find a way to resolve these conflicts in a peaceful manner so that we maintain peace on Earth.”
He asked the audience to consider history when framing his argument.
For 1,800 of the past 2,000 years, China’s economy has been the world leader, save for a brief period when the U.S. emerged following World War II, a time when the U.S. had almost no trade deficit to speak of.
“Sometimes I run into folks who say, ‘Gee, can’t we get back there again?’ I go, ‘Yes it’s very simple, we do what happened in WWII, blow up the world, keep the U.S. nice and safe and you go back and ship stuff around until they (other countries) get their manufacturing back in place.
“We’re the new kid on the block, not China, from a historical perspective,” said Buehrer. “... We were the only game in town. When you’re the only game in town you can be very efficient.”
Since China joined the World Trade Organization in 2001, imports from China have skyrocketed, making American products more affordable while also raising the U.S.’s trade deficit from $0 to more than $300 billion by 2016.
Currently, the U.S. and China trade to the tune $636 billion, with the U.S. at a deficit of $375 billion, compared to other countries like Canada ($582 billion and $18 billion) and Mexico ($557 billion and $71 billion).
Tariffs have been employed by the current administration to try to reduce that gap. Total U.S. tariffs applied exclusively to Chinese goods stand at $250 billion, while total Chinese tariffs applied exclusively to U.S. goods stand at $110 billion.
But history aside, Buehrer’s argument is one of mathematics, free of political motive.
“In healthcare you have the Hippocratic oath, do no harm to the patient,” he said. “In economics, they have their version of that. Thou shall not impose tariffs because tariffs create inefficiencies in the global economy.”
According to Buehrer, tariffs prop up inefficient industries, leading to further issues of the market correcting.
“Everybody would be better off if they specialize in what they do best. This is why they don’t grow oranges in Michigan, for example,” he said.
Inherently, tariffs raise the cost of domestic goods, Buehrer said.
“There are many economists that say the great global prosperity of the last 30 to 40 years has been driven by falling tariff rates around the world,” he said, noting global tariffs fell sharply after WWII.
“Many people think that we’re mostly importing Apple iPhones, video games and cars,” said Buehrer. “The reality is the bulk of what we import to run our country is stuff that’s used in manufacturing. It’s raw materials, it’s purchased compounds.”
He highlighted George Bush’s 2002 steel tariffs as having created 3,500 jobs in the steel industry, while as many as 200,000 were lost due to firms moving to other sources for steel.
Currently, 400,000 people work in steel and aluminum mills, with a further 5 million working in jobs associated with steel, according to Buehrer. Meanwhile, steel stock prices have plummeted since tariff implementation, when they had been at an all-time high.
“The fear is that if you impose tariffs, the steel and aluminum prices will increase, demand will fall and you’ll lose far more jobs. What happened with Bush’s tariffs will indeed be the case again,” said Buehrer.
The overall U.S. budget deficit sits at $1 trillion this year and has been at troubling levels for years. Due to that, Congress in December 2017 approved a government stimulus package and later reduced taxes.
According to Buehrer, these two ideas play heavily into a fundamental formula of macroeconomics: (imports minus exports) equals (government spending minus taxes) plus (investment minus savings). Therefore, he said, it is a mathematic certainty that the U.S.’s total trade deficit would continue to climb.
“This thinking that, by putting tariffs on, we’re somehow going to drive down the trade deficit is false thinking, it doesn’t work, you’re violating the laws of mathematics,” said Buehrer, who drove home his point by noting a survey of 43 economists from Stanford, University of California-Berkeley, Princeton, Harvard and others yielded unanimous results that tariffs would not yield a net positive for Americans.
Many trade associations have echoed that sentiment for their own interests since the adoption of tariffs on national security grounds under Section 232, which gives the executive branch powers to do so.
Despite tariffs, the U.S.’s global trade deficit was at a 10-year high in 2018, to the tune of $621 billion, and is still growing, according to Bloomberg.
Buehrer further indicated his belief that the U.S. global trade deficit will continue to climb, shifting more heavily to countries like Vietnam and Mexico, rather than China.