In a recent blog post, renowned Harvard economist Gregory Mankiw rebutted former President Trump’s assertion that a value-added tax (VAT) operates as a trade barrier. Mankiw affirmed that VAT is a consumption tax applied uniformly to both domestic and imported goods, arguing that it does not discriminate against imports. Trump’s memorandum to impose reciprocal tariffs on trading partners has sparked ongoing debate about the nature and impact of such tariffs in the economy.
Mankiw’s stance was reinforced by economist Douglas Irwin, who published an op-ed in The Wall Street Journal criticising Trump’s tariff strategy as fundamentally flawed. Irwin evoked British economist Joan Robinson’s wisdom: “Just because other countries have rocky coastlines doesn’t mean we should throw rocks into our own harbors.” He highlighted that managing an estimated 2.6 million possible tariff combinations would overwhelm the U.S. customs system.
Despite being a conservative economist, Mankiw notably supported Kamala Harris because she was“I am not Trump.”Critics at the American Economic Association meeting expressed similar concerns about Trump’s protectionist policies, warning that such measures could instigate inflation and a global recession. They noted that the driving factors behind the trade deficit stem from a low national savings rate rather than tariffs.
Historically, Trump has lauded President William McKinley for his protective tariffs that supposedly fostered prosperity. However, former advisor Karl Rove pointed out that McKinley eventually recognised the importance of reciprocal tariff reductions, clarifying that “trade wars are not profitable.” Moreover, the stark economic contrasts between then and now—such as tariff income only accounting for 1.9% of revenues—indicate that tariffs are no longer a sustainable financial strategy.
In his book “The Art of the Deal,” Trump emphasises bold negotiation: “Think big” and “Use leverage.” This tactic, aiming to begin with extreme demands to unsettle rivals, raises concerns about the repercussions of his tariff policies. With leadership gaps evident in countries like Korea, there is a risk that hastily devised responses could diminish their bargaining power in vital future negotiations.
Ultimately, the burden of Trump’s tariffs will fall on American businesses and consumers, despite Trump’s claims of long-term advantages. Former Federal Reserve Chairman Ben Bernanke argued that using tariffs as temporary measures could limit inflationary impacts, while prolonged tariffs might destabilise market prices. As uncertainty looms, businesses are likely to heed Bernanke’s caution, reassessing local production strategies amidst tariff-related pressures.
Harvard economist Gregory Mankiw challenges Trump’s assertion that a VAT acts as a trade barrier, emphasising its neutrality. Criticism of Trump’s tariffs includes concerns over their complexity and potential economic repercussions, with economists warning they could drive inflation and affect the U.S. trade deficit. Additionally, historical perspectives suggest a shift in economic strategy is necessary, as modern financial dynamics differ significantly from previous eras.
The ongoing debate around Trump’s tariff policies highlights the complexities of international trade and economics, drawing criticism from top economists. While Trump views tariffs as a negotiation tool, the potential long-term consequences could lead to economic instability. Overall, the burden of these tariffs poses significant challenges for American consumers and businesses, with key voices urging caution as markets navigate this uncertain landscape.
Original Source: koreajoongangdaily.joins.com
