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Trump Tariffs: Leveling The Field And Saving The West From Itself

The United States is the largest customer for virtually every other nation on Earth

 © Provided by The Daily Caller, Inc. Trump hard hat Getty Images Mark Lyons GOOD

By John A. Thaler, The Daily Caller

President Donald Trump is presently in phase one of abolishing the global order of “modern diplomacy,” in which Western governments have pursued and accepted inferior outcomes for their citizens in the name of globalism and compassion. His actions are intended to level the playing field and thwart the advancement of nations who do not play by those rules, and who have consequently amassed significant wealth and global influence, the trajectory of which presents an existential threat to the West. Recent rhetoric on tariffs is designed to reverse these trends, and to better position western nations to deal with the looming rise of authoritarian regimes in the East. Target number one in this exercise is China.

Over the next decade, it is quite likely that China will have all of the largest economy in the world, the largest population in the world, the largest military budget in the world, and the most state of the art military systems available – all of this made possible by China breaking every rule of free trade, and the West paying them to do so. Because China cheats, it can make virtually every product cheaper than those who play by the rules. Thus far the international response to this has been for the world to close its’ factories and pay China for its products. China has taken this money and used it to build warships.

[post_ads]There are clear reasons why one should be concerned about this. The Communist Party of China has adopted its quasi-capitalist, “free market” economy as a means of enriching itself and achieving economic dominance, but China is by no means free. The party controls and subsidizes most of the country’s most strategic companies, has maintained ruthless control over free speech and has imprisoned thousands of its’ political opponents in the name of “weeding out corruption.” The regime presently has explicit control over only China but is quickly amassing implicit control through economic influence in Africa, Europe and even North America, and has been on a buying spree of natural resources, ports and other mechanisms of global commerce. While much concern has been voiced over “authoritarian” leaders in the west, one need only spend time with CEOs and citizens of China to understand what real authoritarian behavior looks and feels like.

Concern over how this dynamic unfolds is the basis for the Trump administration’s current trade and tariff initiatives. Step one in this process is introducing a reset to how western governments approach negotiations on behalf of their people. The president is insisting that governments in the West try to protect the people they govern, a premise that would seem self-evident had you not lived in the west over the last three decades. During that time western countries have adopted a number of policies with significant strategic implications in the categories of trade, immigration, climate and defense that seem clearly to the detriment of the established west, and all have been implemented with some mention of deference to “humanity” and “compassion.” It is essential to understand that there are countries in the world that are not adhering to this concept, who are actively benefiting from this asymmetry, and who aspire to achieve economic and political dominance. The president campaigned on the slogan “America First” and appears committed to not handing over America to those that would like it destroyed, a premise he would like to see adopted by American allies as well.

The second phase of this process, despite the suggestion from the global establishment that we must “maintain free trade,” is a reset to “actual free trade.” Global trade today is not “free,” in the sense that companies are not in the marketplace selling goods and services on a “heads up,” fair playing field. Trade can and is made “not free” through several artificial mechanisms, namely tariffs, currency manipulation, government subsidies, and asymmetric regulatory backdrops. There are many examples of asymmetric tariffs already in place globally, and it is also commonplace today for governments to subsidize industries, often because they view these industries to possess strategic national import. For instance, the Canadian government has long subsidized softwood lumber and agriculture, and President Trump’s decision to levy tariffs in response is a move toward “actual free trade.” In the case of China, these asymmetric tariffs aim to undercut global competition to achieve dominance within specific industry verticals (see: China’s 2025 plan for details). But perhaps most critically, asymmetric regulatory frameworks have caused significant chunks of global manufacturing to flow to areas of the world where regulatory standards either don’t exist or are not enforced. This was a key tenet of the president’s desire to abandon both TPP and the Paris Climate Accord, where western countries agreed to one set of regulatory standards while others were either made exempt or given extended windows in which they were free from compliance requirements.

The solar industry is just one example of how regulatory asymmetry benefits deregulated parties. Twenty years ago, solar cells and panels were manufactured almost exclusively in the west. Solar is not labor intensive, so its complete shift to Asian factories was not driven by labor costs. That shift occurred in part due to enormous subsidies up and down the food chain from the Chinese government and, to a more significant extent, a complete dismissal of established western environmental standards related to the manufacturing process. The process of taking polycrystalline and turning it into a solar cell creates a highly toxic by-product, and in the west, there are significant regulations on how that by-product is disposed of. In China, companies are either not regulated or, in many cases, the government looks the other way. Perhaps as a reflection of certain global powers not adhering to governance by ethics and civility, it is no surprise that, ironically, clean energy companies have universally chosen to purchase cheaper solar cells from a place where you can dump toxic chemicals in a river instead of packaging them in a lead container and burying them deep in the ground.

At the end of this process the president will seek the best outcomes possible for the United States, both economically and strategically. The United States is the largest customer for virtually every other nation on Earth, provides military defense for much of the world, and is the most significant contributor of humanitarian aid globally. In any open negotiation, it is likely that the United States would obtain the most favorable economic terms every time. More important than the economics, however, are the long-term strategic interests of the United States. Would President Trump accept neutral tariffs in exchange for cooperation from Mexico on the Southern border? Likely yes. Would he accept sub-optimal economic terms in exchange for a coordinated effort from Western nations to help push back on the growing existential threat presented by the ever-increasing economic and military power of China? The answer is undoubtedly yes. In his mind, however, the days of accepting bad outcomes for America to maintain a civil discourse are over.
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Whether it be China’s inclusion in the WTO, the United States’ signing of NAFTA, or immigration policy across the EU, Western nations have, for decades, made significant strategic decisions to advance a globalist agenda, rather than to protect or advance their people. It is an important question for every citizen of Canada and the rest of the Western Hemisphere to ask: if what is in the “best interests of the world” and what is in the “best interests of your family or country” contradict one another, which would you choose? More importantly, which do you want your government to choose? An important consideration in that calculus is the fact that there are non-friendly countries around the world pursuing their own strategic interests at all costs. President Trump has made his choice clear: he intends to protect the American people. If Prime Minister Justin Trudeau and other leaders join him in this approach, we may all benefit in the long term through a stronger strategic alliance against the pending rise of authoritarianism in the East.

John A. Thaler serves as the founder and portfolio manager at JAT Capital Management, L.P., a multibillion-dollar global equity investment firm.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.

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