Trade Wars: the Last Protectionist

Trade Wars: the Last Protectionist

Matthew Boyle explores the impact of Donald Trump’s trade tariffs

For a man who spent so much time on the campaign trail bemoaning the U.S.’ trade deficits, the first year of the Trump presidency saw surprisingly little associated action. Perhaps the most important man in deterring the president from engaging in trade wars with Europe, Canada, China and elsewhere was Trump’s chief economic advisor, Gary Cohn. Cohn, somewhat surprisingly, is a Democrat and was therefore a desperately needed moderating voice in the White House. However, with Cohn’s resignation, Trump seems completely unrestrained from promoting his dangerous brand of economic populism at the expense of long-standing trade relationships between the U.S. and some of its greatest allies.

In Trump’s worldview, assuming he believes what he says, the U.S. does not have any real allies. The Canadians, the Mexicans and the Europeans are all free-loaders who do not contribute enough to NATO, demand that the U.S. spend money to protect them and then turn around and bilk the U.S. with unfair trade deals. It is these trade deals, and apparently nothing else (with the possible exception of environmental regulations), that have killed U.S. manufacturing and made the U.S. weak. To demonstrate that it will no longer be pushed around now that it is ‘great again’, therefore, the U.S. must force the renegotiation of these deals by imposing tariffs on cheap foreign goods. While it has great visceral appeal to many unemployed Americans who feel like they have been cheated, his tariffs make no economic sense. The decline of American manufacturing is due to much more than ‘unfair’ trade deals and imposing tariffs on steel and aluminum will do nothing at best or start a trade war at worst.

Tariffs are a double-edged sword and if Trump is not careful he might shoot himself in the foot by imposing them. Although he has survived countless self-inflicted wounds, the consequence of a tariff could be an increase in the price of anything made with steel or aluminum. It would thus be the first time Trump’s policies have directly and negatively impacted Americans’ personal expenses. It has been Trump’s good fortune to inherit a growing economy and any damage he does to it might even cause his so-far unwavering base to falter in their support.

The other negative consequence of tariffs is retaliation. Indeed, the E.U. is already considering plans to enact retaliatory tariffs against U.S. products. It does not bother Trump that a trade war might break out because, as he explained in a tweet, ‘trade wars are good and easy to win.’ That could not possibly be true, since, if it was, they would occur frequently. Still, he may actually have a point in this particular instance. While the E.U.’s leadership in Brussels is planning to retaliate, individual E.U. member-states like Germany are not nearly as eager to respond to Trump’s tariffs in-kind. Moreover, Trump is offering to exempt certain countries and this is only exacerbating the reticence of certain E.U. members to commit to retaliation. If the divisions in Europe are too great, Trump may very well get away with imposing tariffs on the E.U. without incurring E.U. tariffs on the U.S. Trump has therefore taken a gambit by imposing them. They could blow up in his face, fizzle out without much drama, or demonstrate to his base how strong he is by calling the E.U.’s bluff.

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