Last week, President Donald Trump announced yet another trade deal, this time with Japan. The deal puts a 15% tariff on goods imported from Japan. Trump called the deal “a great deal for everybody.”
But is it a great deal for everybody? Last year Americans imported $150 billion worth of goods and the average tariff on those goods was about 2%. So, Americans paid a 2% tax last year and are going to pay a 15% tax this year. Doesn’t sound like a great deal for American consumers.
Anybody who can do basic math can figure out that this is a substantial increase in the tax burden on American consumers. This is just the latest in a string of “great deals” negotiated by President Trump that increase tariffs and make things more expensive for us. For example, his most recent deal with Vietnam doubled the taxes we now pay for goods from there, raising tariffs to 20%.
Perhaps what’s so interesting about the president’s protectionist economic policies is how quiet Republicans are about it. Republicans used to be the party of low taxes, but they have followed lock step behind President Trump as he has consistently raised taxes on American consumers. Could you imagine if a Democratic president had engaged in such behavior? Unilaterally imposing new and higher taxes as he pleased? Republicans would be howling on Fox News every night about abuses of power and throwing around the term “socialism” like Joe McCarthy had come back from the dead.
But now the Republican Party is the party of economic populism, closed markets, and isolationism. And for what? Factory jobs that are never coming back? They’d rather have robots working for them than pay Americans an honest working wage like the factory jobs of half a century ago.
Milton Friedman, the Nobel Prize-winning economist who advised conservative world leaders like Ronald Reagan and Margaret Thatcher, once said that tariffs were protective measures, that they protected the consumer against low prices. Reagan said that trade helped strengthen the free world, that we shouldn’t use the language of warfare because in trade both sides should be winners, there should be no losers. That used to be what Republican economics looked like, free trade, open markets, low government interference.
But the Republican Party of today wants to make sure that we don’t get any relief coming off of the highest inflationary period in 40 years. Republicans often call themselves members of the Party of Reagan. But their current foreign economic policy couldn’t be more different than that of the Gipper.
The other part of the deal with Japan is a $550 billion commitment by them to invest in key industrial sectors here in the United States. According to the White House, the U.S. would get 90% of the profit off of those ventures, and Japan would get 10%. But Japan said that the amount of return would be based on the amount of risk taken by both sides. That means that the U.S. and Japan aren’t in agreement about what the investment means and who gets the profit. In addition, Japan sees the $550 billion as an “up to” number, not a solid commitment, whereas the White House is operating under the belief (or at least they are claiming they are) that Japan will invest the entire sum.
Japan also agreed to import more rice from the U.S., but the quota remains unchanged from the previous 770,000 tons and they agreed to open up Japanese markets to more U.S. autos. But even if the markets are open, that doesn’t mean that consumers will buy them. Many American models don’t offer right-hand driving as an option, and even the ones that do are often too big for Japan’s narrow roads and tight parking spots. In addition, it is going to be tough for American autos to compete with Japanese brands. This year’s car reliability report from Consumer Reports listed Subaru, Lexus, Toyota, and Honda as the top models (all Japanese), and the bottom four were all American models (Jeep, GMC, Cadillac, and Rivian).
So, while this deal may open the markets, it’s doubtful Americans are going to see any economic benefit from this latest “great deal.” We will, however, see even higher prices at the store as the president continues to protect us from low prices.