Presidents Reagan and Trump share a common tariff policy

Recently, Ontario, Canada, made the questionable decision to air a clip of former President Reagan that misleadingly suggests he was completely anti-tariff. Not only is this clip selectively edited to bias Reagan’s complete views, but it also reveals a significant lapse in judgment by Canadian officials.

Both Reagan and Trump are strong advocates for free and fair trade. And why wouldn’t they be? When nations specialize in producing goods where they have a clear comparative advantage and trade for their additional needs, it creates mutual benefits for everyone involved.

A classic economic illustration involves two countries, let’s say the U.S. and Colombia, and two products: wheat and coffee.

The U.S. excels at wheat production thanks to its favorable Midwestern climate, enabling the production of large quantities at efficient and low cost. The US cannot efficiently produce coffee.

On the other hand, Colombia is ideally suited for coffee cultivation but is less capable of producing wheat efficiently.

By specializing, Colombia in coffee and the U.S. in wheat, both can trade and enjoy greater quantities of each product. While this makes sense, it only works if there are no tariffs and no quotas placed on either country.

In the ad run by the Canadians, President Reagan clearly pointed this out. He also spoke of the negative consequences of hindering free and fair trade.

But Reagan knew tariffs and quotas could be used to achieve important American goals.

That’s the part that the Canadians decided not to mention, since they thought they could get the support of the American people. Canada thought that would apply political pressure on Trump to negotiate a more favorable trade deal for them.

The outcome was precisely the opposite. Trump perceived the Canadians’ audacity and their slow, reluctant negotiations as justification for a firm “no more,” and halted negotiations after adding another 10% tariff on their goods.

The core issue Trump faced with many nations was rooted in decades of U.S. commitment to free trade, while much of the world maintained decidedly different practices. Historically, the U.S. had a nominal tariff of just 2.5% on most imports, while countries around the globe imposed tariffs ranging from 20% to 100% or more on U.S. goods.

This led to an annual trade imbalance, resulting in hundreds of billions of dollars of U.S. wealth leaking out of the country each year. This policy enabled China to grow so rapidly.

Past U.S. presidents rationalized that while China didn’t purchase much from the U.S., American consumers benefited from lower-priced Chinese products. They overlooked the fact that access to China’s market of over one billion consumers was continually out of reach for American companies.

Reagan recognized that tariffs could be a tool to rectify imbalanced trade agreements. From 1981 to 1985, he successfully negotiated a voluntary quota with Japan, limiting the number of low-cost cars they could sell in the U.S.

Additionally, he imposed a hefty 45% tariff on large motorcycles and restricted foreign manufacturers to no more than 18.5% of the U.S. market.

Reagan imposed those tariffs and quotas to protect the automobile industry from Japanese cars. Both Congress and trade groups strongly pressured Reagan to impose these trade restrictions. Although the tariffs and quotas are contrary to the principles of free trade, Reagan implemented these policies.

Similarly, President Trump has utilized tariffs to create a more level playing field. In most instances, he has successfully negotiated trade agreements that are not only fair but favor the U.S.

Like Reagan, Trump’s policies assess the benefits of free trade along with the necessity for Americans to produce more of the goods they consume, especially products vital to national security, such as steel, copper, aluminum, and medical supplies.

Trump’s approach appears to be yielding results. With little or no impact on inflation, he has generated hundreds of billions of dollars of tariff revenue, and more importantly, most countries are now accepting American-made products without any tariffs or quotas.

Running heavily biased advertisements to sway American public opinion against Trump’s tariff policy was not just misguided; it was a strategic blunder on Canada’s part. Trump’s response to Canada running those ads and dragging their feet with negotiations was an immediate, extra 10% tariff on all Canadian goods.

Attacking Trump is never an intelligent way to negotiate with him, especially when he is negotiating from a position of strength.

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