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Let’s tax our exports and make our country great!

Let me lay my cards on the table. He may be President of the United States, but Trump the Chump is how I refer to him. Nowhere is his thinking more muddle-headed than in international trade. It is a simple arithmetical fact that the economic impact of imposing a tax on an import is exactly the same as imposing a tax on an export. Anyone with an A-level in economics can explain this basic fact to the President, not that he will want to listen.

Exports and imports are two sides of the same coin, with the exchange rate acting as the middleman. For example in Britain’s dealings with the EU, we like to drive BMWs and in exchange we pay for those primarily by providing services such as banking and insurance. We are world leaders in those fields in the same way that Germans are great at making cars.

By imposing extra taxes on imports to the USA, Trump is ultimately reducing the value of exports the USA can make to the rest of the world, even if other countries do not retaliate. Naturally, though, other countries and trading blocs such as the EU are retaliating. Overall this simply increases the cost of doing business across the world and either leads to higher prices or lower trade levels.

So one benefit we will see in this country if Brexit is done properly – which admittedly looks highly unlikely – is lower food prices. The EU maintains high food tariffs, this is in my view morally unjustifiable as it transfers money from very poor countries such as in Africa to rich countries in Europe, because the tariffs price many African crops out of the European market.

Back to Trump. There is real danger in what he is doing, and it is called a recession or worse. Lower volumes of global trade due to higher tariffs are in the end bad for everyone. That’s why world stock markets drop every time a new menu of higher tariffs is announced by the USA, China or the EU. So get rid of the tariffs to make America great again, Chump!

Thursday 5 July 2018