How current trade policies may be ushering in trouble.
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Are Tariffs Inviting Global Instability?
Mainly positive economic indicators and a healthy real estate market are not enough to scare away a black swan in 2019. And it wasn’t enough in late 2018 either, when author and speaker John Manzella used the term at the TrustBelt Corporates & Consultants Forum in Detroit to illustrate the unpredictability of events that can jolt global economic and commercial markets. Black swans can happen any time. The March 2011 earthquake in northeast Japan and resulting tsunami and nuclear power plant damage is a good example. No one saw that coming.
An expert on global business and economic trends, and founder of the ManzellaReport.com, Manzella was concerned at the time that economic uncertainty and volatility would be exacerbated in the coming months by the specter of trade wars, chiefly with China, as the Trump Administrations seeks to recalibrate trade agreements to correct perceived imbalances. A homemade black swan, in other words. Getting trading relationships wrong will have long-term ramifications for U.S. businesses, he warned.
“Tariffs, in my opinion, are a 1960s and 1970s strategy because of the sophistication of trade today and supply chains.”
– John Manzella, economist and founder of ManzellaReport.com
“Trade is a tremendous, positive force,” noted Manzella. “For example, there are 1.8 billion middle-class consumers. By 2030, there will be 5 billion, and they won’t be in North America or South America or Europe. The vast majority of them will live in Asia, India, China and Northern Africa. So, U.S. companies need greater access to these faster-growing markets. Markets outside the U.S. represent 80% of the world’s purchasing power and 92% of economic growth. We need more free trade agreements, not fewer.”
What we do need fewer of, Manzella asserted, is tariffs.
“The Chinese have no doubt engaged in policies that are illegal according to the WTO – piracy of intellectual property, predatory behavior,” he noted. “But how do you change Chinese behavior? If we up our tariffs, President Xi to save face has no choice but to bump up Chinese tariff barriers.”
Did the steel tariffs work?
“The U.S. steel producing industry did benefit from the steel tariffs, which are 25%,” Manzella pointed out. “But think about this: There are 140,000 U.S. workers in the steel-producing industry that benefit. But for each of them, there are 5.5 to 6.5 U.S. employees in steel using industries that are hurt. Tariffs, in my opinion, are a 1960s and 1970s strategy because of the sophistication of trade today and supply chains. U.S. companies need access to these faster-growing markets. How long can we sustain these tariff wars? Maybe the Chinese blink first or are beginning to blink, but it’s a very dangerous direction, and it’s one that can create a black swan and put downward pressure on economic growth.”
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