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Monday, March 26, 2018

Tariffs work. Today's proof

I love how people who told me in December that cutting taxes would destroy the economy, turned around and told me imposing taxes on imported goods would destroy the economy by starting a trade war.

I have news for them: we have been in a trade war since we landed at Plymouth Rock.

CNN ran a column by Jeffrey Sachs, an economics professor at Columbia University, "Trump's tariff move shows he flunked economics."

Actually, economics flunked reality.

Trump imposed a 10% tariff on imported aluminum, and 25% on steel imports. This quickly opened a few steel plants.

But as I wrote on March 8, "Tariffs are a bargaining chip."

They give him leverage. He extended a temporary exemption to Canada and Mexico, which gives him an edge in the NAFTA re-negotiations.

South Korea, meanwhile, agreed to limit exports of steel in exchange for a permanent exemption.

"The U.S. and South Korea reached an agreement on revising their six-year-old bilateral trade deal and the U.S. said it wouldn’t impose President Donald Trump’s tariffs on steel imports from its ally in Asia," Bloomberg News reported.

"The two countries reached agreement in principle on the trade deal known as Korus, South Korea’s trade ministry said in a statement on Monday. While Korea avoids the steel tariff, shipments of the metal to the U.S. will be limited to a quota of about 2.7 million tons a year, according to the statement."

The art of the deal is you have to have something the other guy wants. A steel limit is better than slapping a limit on car imports.

"Korea’s trade surplus with the U.S. was about $18 billion last year, down from $23 billion in 2016, according to the Korea International Trade Association. Cars accounted for more than 70 percent of the value of the surplus," the report said.

Kia and Hyundai make good cars, by the way.

"On cars, which is an area of particular interest for the Trump administration, the U.S. will maintain tariffs on Korea’s exports of pick-up trucks until 2041, from the previously agreed 2021. Korea will ease some of its safety and environmental regulations on imported US. cars, the statement shows," Bloomberg reported.

For a guy who flunked economics, President Trump sure seems good at cutting deals.