A Trump-initiated trade war won’t end well for our country
Remember when Donald Trump declared that “nobody knew that health care could be so complicated”? It was a rare moment of self-awareness: He may, briefly, have realized that he had no idea what he was doing.
Actually, though, health care isn’t all that complicated. And Republican “reform” plans are brutally simple, with the emphasis on “brutally.”
Some policy subjects, on the other hand, really are complicated. One of these is international trade. And the great danger here isn’t simply that Trump doesn’t understand the issues. Worse, he doesn’t know what he doesn’t know.
According to the news site Axios, Trump, supported by his inner circle of America Firsters, is “hell-bent” on imposing punitive tariffs on imports of steel and possibly other products.
And Axios reports that the White House believes that Trump’s base “likes the idea” of a trade war and “will love the fight.”
Yep, that’s a great way to make policy.
OK, so what’s complicated about trade policy?
First, a lot of modern trade is in intermediate goods: Stuff that is used to make other stuff. A tariff on steel helps steel producers, but it hurts downstream steel consumers like the auto industry. So even the direct impact of protectionism on jobs is unclear.
Then there are the indirect effects, which mean that any job gains in an industry protected by tariffs must be compared with job losses elsewhere. Normally, in fact, trade and trade policy have little if any effect on total employment.
Suppose that Trump were to impose tariffs on a wide range of goods — say, the 10 percent across-the-board tariff that was floated before he took office. This would benefit industries that compete with imports, but that’s not the end of the story.
Even if we ignore the damage to industries that use imported inputs, any direct job creation from new tariffs would be offset by indirect job destruction. The Federal Reserve, fearing inflationary pressure, would raise interest rates. This would squeeze sectors like housing and strengthen the dollar, hurting U.S. exports.
Then there’s the response of other countries. Trade is governed by rules — rules America helped put in place. If we start breaking those rules, others will too.
And it’s foolish to imagine that America would “win” such a war. We are far from being a dominant superpower in world trade: The European Union is just as big a player and is capable of retaliation.
I’m not making a purist case for free trade here. Rapid growth in globalization has hurt some American workers, and an import surge after 2000 disrupted industries and communities. But a Trump trade war would only exacerbate the damage.
Globalization has already happened, and U.S. industries are now embedded in a web of international transactions. So a trade war would disrupt communities the same way that rising trade did in the past. Also, the tariffs now being proposed would boost capital-intensive industries that employ relatively few workers per dollar of sales; these tariffs would, if anything, further tilt the distribution of income against labor.
Will Trump actually go through with this? He might. He posed as a populist during the campaign, but his entire economic agenda so far has been rewarding corporations and the rich while hurting workers. So the base might like to see something that sounds more like the guy they thought they were voting for.
But Trump’s promises on trade, while unorthodox, were just as fraudulent as his promises on health care. In this area, as in, well, everything, he has no idea what he’s talking about. And his ignorance-based policy won’t end well.
This story was originally published July 6, 2017 at 5:03 AM with the headline "A Trump-initiated trade war won’t end well for our country."