Last week President Trump announced a plan to impose harsh new tariffs on imported aluminum and steel. The President promised such action throughout his campaign, endearing him to many American workers. The President sold this line by telling the American people they have been getting a “bad deal” on trade and that he alone could fix it. As with most issues facing the nation, the President’s most recent announcement on trade is short-sighted and potentially devastating for the United States’ Economy.
Tariffs are essentially a tax imposed on imported goods at the border. Before the product can enter the country, the manufacturer must pay the tax. The President promised 25% tariffs on foreign steel entering the United States and 10% on aluminum. These tariffs are high, harsh, and are sure to have repercussions.
The global community is less than thrilled with Trump’s economic protectionism. Almost immediately after the tariffs were announced the European Union and Canada threatened to retaliate by imposing their own tariffs on classic American products like blue jeans, bourbon, and Harley Davidson motorcycles. Those particular items are not only all-American, they are also directly pointed at Congressional leadership.
Bourbon is a Kentucky staple. Kentucky, of course, is the home of Senate Majority Leader Mitch McConnell (R). Similarly, Harleys are largely made in Wisconsin. Wisconsin, of course, is home to Speaker of the House Paul Ryan (R).
The President responded to the retaliation by threatening more tariffs on European cars, signaling the possibility of an all-out trade war. However, the President seems unfazed, tweeting over the weekend that a trade war would be good and “easy to win.”
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!— Donald J. Trump (@realDonaldTrump) March 2, 2018
As we have come to expect from this President, he does not seem to understand the policy or its implications. To have a better understanding of the impact of trade wars on the economy, it is necessary to look back.
Unilateral trade is not a new concept. In the early 1900s, American trade policy was determined not by international negotiation, but by Congress. After the crash and during the Great Depression the government sought to protect American industry by increasing tariffs on foreign products. Instead of helping the Nation out of the Great Depression, that trade policy served to prolong it.
One of the many lessons learned from the Great Depression was that unilateral trade and a protectionist economic stance in the global market were counterproductive. In response to that lesson, Congress passed the Reciprocal Trade Agreements Act of 1934. This legislation allowed the President to negotiate reductions in tariffs with other foreign powers. The operative word in the law’s title is “reciprocal.” The approach that was taken on the world stage was one of reciprocity. Countries would loosen trade restrictions to the extent that other nations similarly loosened their trade restrictions.
The effects of the President’s “America First” position have already started to be felt, and things are sure to get far worse if the President insists on provoking a global trade war. Already, the President has pulled out of the Trans-Pacific Partnership (TPP). The TPP would have fortified the strength of the United States along with eleven other Pacific nations against Chinese economic challenge in the region.
While the President took the United States out of TPP, the other eleven nations moved forward without the US. American exporters now have decreased access to those markets as preferential trade deals are made between the participating nations. The country benefiting most from the isolationism of the Trump administration was China.
The potential of a trade war marks entirely new threats to the United States economy. Industries that require steel and aluminum, everything from automobiles to construction to soda cans, will see their costs increase. Either these American businesses will just take the hit on the additional cost, or more likely, they will pass that cost on to the American consumers. Increases in costs will likely result in decreases in sales.
Beyond the potentially damaging economic forecast for the United States, if the President moves forward with his proposed tariffs, the plan further erodes the standing of the United States in the global community. All individual nations that participate in the global economy exist in relationship with one another. Action taken by one will be felt by others who will respond in kind. Global trade is a complex balancing act, requiring participating nations to consider their country’s interests but also the interests of their trading partners. It is through this delicate balance that productive trade agreements are made. The President’s harsh tariffs assume total American supremacy on the world stage. That assumption, like much of this administration’s policy positions, is not based in reality. This President’s populist agenda has already damaged the global position of the United States, and a trade war would only further diminish that position.
In addition to economic, diplomatic, and global harms that are sure to come from this misguided policy, the President is sure to face serious political backlash. Members of his own party have all but begged him not to proceed with this plan.
Here are a few of the things they had to say:
Senator Lindsey Graham (R-SC) said to the President on Sunday, “You’re punishing the American taxpayers, and you are making a huge mistake.” Graham also added that “China wins when we fight with Europe.”
Senator Pat Roberts (R-KS) said on Thursday, “Every time you do this you get retaliation. And agriculture is the number one target. I think this is terribly counterproductive ... and I’m not very happy.”
Senator Ben Sasse (R-NE) summed it up well when he said, in response to the President’s claim that a trade war would be “good and easy to win,” that "Trade wars are never won. Trade wars are lost by both sides. Kooky 18th-century protectionism will jack up prices on American families — and will prompt retaliation from other countries. Make no mistake: If the president goes through with this, it will kill American jobs — that's what every trade war ultimately does. So much losing."