Trump purports to believe that an enormous tariff on Chinese goods will result in the return of manufacturing goods to the US. This is a classic import substitution program; it resembles the one being employed in Russia, partly by choice and party due to sanctions imposed by the EU.
As in Russia, it wouldn’t work, for the following reasons:
- The Chinese economy has evolved to the point where, for a substantial number of essential manufactured goods, there is no alternative supplier.
- It would take years before the market actually believed the tariffs would stay in place and the requisite investment in new plant and equipment could be made. Prices would skyrocket in the interim, leading to very high wage demands and a likely increase in interest rates.
- For goods that are highly dependent on labor costs, the most plausible alternative to China is not the US, but Vietnam or India. The tariffs would have to be applied all over the world in order to result in import substitution.
- Even if, somehow, the tariffs “worked,” and the substitute goods were ultimately made in the US, the cost of each “saved” job would be prohibitive, based on a multitude of studies, and quality would suffer accordingly.
Does this sound like a good way to “Make America Great Again?”