What's Behind President Trump's Tariff Policy?

For over half a century, China has produced items that American consumers want to buy, from early, inexpensive toys and gadgets to today’s high-tech personal computers, smartphones, and advanced equipment and machinery.

What made these transactions so distinctive was that China almost always sold these products at a lower price than any American competitor could match. To Wall Street and the US economic elite, this was the best of all worlds; bringing generally high-quality, low-priced goods to American shores meant that we enjoyed a more affluent lifestyle, and our incomes stretched further.

The purchasing power of the average American increased, as did the value of the US Dollar. Interestingly, the multi-decade period of near-zero US inflation was driven, to no small extent, by the importation of cheap Chinese goods. China’s gift to us, inexpensive consumer goods, drove prices lower and lower, enriching their American consumers.

When you listen carefully to today’s traditional economists, financiers, and many politicians, in that case, you will hear this argument: Unlimited international trade benefits both parties and has enriched Americans for nearly a lifetime.

So What’s Trump Up To?

The question arises: What is President Trump’s objective in imposing tariffs on Chinese-imported goods? Will he raise import prices and thereby negate all of those benefits that we’ve enjoyed for so long?

The answer is a resounding YES. Trump’s Chinese tariffs, in particular, will make many of the goods we purchase more expensive. We can ignore the facetious argument about whether the Chinese producer, the importer, or the retailer “pays” the tariff. The honest answer is that consumers like you and I purchase goods that will now cost more, regardless of who pays the tariff officer at the shipping dock.

So, where did this crazy idea of tariffs come from? And why did Trump aim the most draconian tariffs directly at China?

While it’s never easy to determine what this peripatetic President has in mind, the concept of predatory pricing has been well established in U.S. law for nearly 90 years.

The year was 1936, and two members of Congress, Senator Joseph T. Robinson (D-AR) and US Representative Wright Patman (D-TX), saw that large store chains, suppliers, and shipping companies were using unfair pricing to put small shops and stores out of business. The larger enterprise could eliminate competition by pricing goods so low, often even below manufacturing costs. The small mom-and-pop store could not compete against its larger, more diversified neighbor.

In the hands of an unscrupulous retailer, the price of goods sold became a powerful weapon. In 1936, President Franklin D. Roosevelt signed the Robinson-Patman Act, specifically designed to outlaw predatory practices.

But the Robinson-Patman Act stopped at the nation’s borders. It was aimed at, and to a considerable extent, curtailed, the predatory pricing of American mega-retailers.

It would be 37 years later, in 1973, when we were introduced to a foreign country that would take predatory pricing to the next level. Through a series of diplomatic moves, President Richard Nixon helped open relations with China. Thinking he was opening the Chinese market to U.S. suppliers, the reality turned out to be the direct opposite. Rather than the Chinese purchasing American goods, Americans have bought “made-in-China” products.

In 2024, the US Trade deficit with China was nearly $300 billion, a 5.8% increase from the previous year.

https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china

This deficit was, by far, our most significant trading deficit with any country and represented nearly a third of our total trade shortfall.

Within the Trump Administration, Peter Navarro, special counselor to the President on Trade and Manufacturing, has been the most steadfast critic of China’s aggressive pricing and manufacturing practices. Navarro begins his riveting book, Death by China, by noting China’s failure to adhere to any US Standards or requirements:

The world’s most populous nation and soon-to-be largest economy is rapidly becoming the planet’s most efficient assassin. Unscrupulous Chinese entrepreneurs are flooding world markets with lethal products. China’s perverse form of capitalism combines illegal mercantilist and protectionist weapons to pick off American industries, job by job.

Death By China, by Peter Navarro, (2011, Prentice Hall) page 1.

Navarro delineates how several unique strategies enhance China’s predatory pricing. These strategies include artificially lowering the foreign exchange rate of the Chinese Yuan, reducing production costs by ignoring environmental standards, utilizing the lowest-cost labor, avoiding safety standards, providing little or no retirement benefits, and so on.

The result of these unfair manufacturing standards is that Chinese costs are significantly lower than those in the United States. Even if that standard may be irrelevant because Chinese companies are not required to make a profit when competing against American companies, they aim to capture the American market, and the Chinese Central Committee will meet any loss incurred.

Low-impact production, such as clothing, household wares, and consumer electronics, will undoubtedly continue to be at the heart of the Chinese industrial colossus.

However, recently, China took the opportunity to show another side of its development, what Wall Street labeled its “Sputnik” moment. This is about the 1957 circumnavigation of a Soviet Union satellite. At the time, America was gobsmacked by this feat of outer-space technology.

In the same way, we were again gobsmacked by the introduction of “Deep Seek,” China’s foray into an AI-driven app that was remarkably close to the ChatGPT app developed by the OpenAI project. What made this new competitor so impactful was its very low development cost, reportedly a few million dollars, versus the several billion spent by the Americans, combined with the lower level of components, such as computer chips, used by the Chinese developers.

China is developing into a high-tech superpower, along with its conventional industrial prowess. Chinese cities like Shenzhen, Hangzhou, and Guangzhou are rapidly transforming into “smart cities” that aim to compete with Silicon Valley's American infrastructure.

The combined impact of China’s industry, from low-level manual production to high-tech automation, presents the United States with the most comprehensive challenge since 18th-century Industrialized England. Much of China’s capability is fully operational, like England under King George. On the other hand, America must retool and rebuild its industrial base, which has been allowed to atrophy.

Like Andrew Hamilton and James Madison, President Trump and his chief trade counselor, Peter Navarro, have chosen tariffs to “level the playing field.” Only time will tell whether this new American tariff strategy will be as successful in the 21st century as it was in the 18th.

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