Last week before his “state of the union” address to Congress, President Trump visited with executives from the Harley-Davidson motorcycle company who admitted they were outsourcing their technology abroad. Harley-Davidson cycles are often subject to large tariffs when they are produced in foreign countries, sometimes as high as 100% because of competition with other manufacturers.
Nevertheless, the stock has been doing well since the financial crisis of 2008. After mentioning his discussion with the executives on overseas taxes, Trump commented, “They weren’t even asking for change… But I am.”
Trump’s idea of “change” is to impose heavy duties on foreign products coming into the United States. A smarter solution, in my opinion, would be to threaten foreign countries with retaliatory duties unless they reduce the costs of the tariffs they charge.
Even if foreign countries don’t reduce their tariffs, U.S. consumers are better off having easy access to cheap foreign products. The United States has set the standard and, as a result, we’ve become the wealthiest nation in the world.
Admittedly, there have been a lot of manufacturing jobs lost domestically as a result of free trade, but I believe a better solution is to cut taxes and regulations on U.S. businesses so that they can compete with foreigners on more advantageous terms.
Trade is a major part of the economy, both domestic and international, and its even bigger than President Trump realizes. Exports plus imports represent 30% of our gross domestic product (GDP), and 60% of the world’s GDP. In Panama, the figure is 120%, thanks to the Panama Canal and its free-trade zone. If Trump disrupts this pattern, expect trade wars and lower economic growth to start appearing.
Perhaps President Trump might come to have an improved economic policy if he figures out who his advisors in this area are going to be. We are now more than one month into the Trump presidency and he has yet to find an economist to head up the Council of Economic Advisors. I still find it amazing that Trump has rejected all of his potential supply-side economic advisors — Larry Kudlow, Steve Moore and Anthony Scaramucci.
It must be tough trying to find a Ph. D. economist who will support some of his anti-trade views. Recently, I talked to a top supply-side economist (who wished to remain anonymous) who said that the problem is Gary Cohn, who left Goldman Sachs to head up the White House economic team. Cohn apparently wants to control all things economic at the Trump White House.
In general, I tend to see Trump as a big-spending supply-sider. He has promised historic spending hikes for defense, veterans, infrastructure, border security and child care, while refusing to cut Social Security and Medicare costs. Consequently, the deficits and national debt are likely to balloon under Trump.