On Friday, President Trump added another page to his ongoing “gatekeeper capitalism” story. Once again, China is the target, and once again, Trump is threatening to close the door to the flow of its imports, unless they shape up. He indicated that we don’t have to do business with China. But there is a bit more to the story.
Perhaps thinking of himself as capable of opening and closing America’s gates when it suits him, Trump may have overstated things a bit. In fact, we must continue to do some business with China. Holding $1.1 trillion in U.S. debt, China is now our largest creditor. Like it or not, we will have to keep servicing the debt unless Trump intends to default.
Trump’s affection for gatekeeping capitalism has marked his administration since early 2016 when he attempted to impose border taxes as a way to pay for the wall he promised to build on America’s southern border. Perhaps seeing America as a gargantuan Six Flags Over Georgia, Trump figured he could stand at the gate and sell tickets to the world’s largest merry-go-round. After that gambit failed, the president moved on to greener tariff pastures, by imposing tariffs on aluminum, steel, and myriad other goods Americans preferred to buy from abroad.
Trump argued that his tariffs would generate a large flow of funds to the U.S. Treasury Department and help to fund America’s ongoing and growing deficit. As the below chart reveals, tariff revenues have risen significantly during the Trump administration but have fallen recently in association with the coronavirus recession.
So, while some $60 billion in tariff revenues went to the nation’s cash register in 2020’s second quarter, we must be clear on one thing: For the most part, these were paid by American citizens, not by foreign producers and exporters. As has been argued many times, tariffs and trade wars make nations poorer, not richer. Recognizing this does not preclude the possibility that nations will still struggle over issues related to trade as they attempt to build a more prosperous future.
Never acknowledging that trade enriches willing participants on both sides of a border, Trump seems to be more enamored with the role he may play as keeper of the golden keys to the U.S. market. Playing the role undoubtedly magnifies the strategic importance of the White House in the American capitalism story. But just as surely, it diminishes the wealth delivered by the uncoordinated efforts of millions of free people when they make voluntary choices to improve their own lives and future prosperity.
Let’s hope that Trump will change his tune about doing business with China and that he will never extend this rationale to recklessly defaulting on our debt.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
