Donald Trump’s Impulsive, Reckless Trade War Puts America Last
In an almost universally panned move, Donald Trump finally acted on one of his more ill-advised campaign promises by mandating tariffs on steel and aluminum. As a consequence, we have Canada livid at this development and the EU drafting retaliatory measures against the main exports of states which put the current Republican leadership in office. Meanwhile, in his typical style, The Donald proclaims that trade wars are easy to win and good for the economy because he seems to inhabit some bizarro world where no nation can survive not selling something to the United States. All in all, it’s an ugly mess that will do us absolutely no good, and even worse, this all started not as a result of a policy debate, but because Trump was angry and needed to lash out.
The biggest problem with protectionism is that it only works in a country that needs a lot of internal economic development. If you’re looking at having to set up a modern industrial infrastructure, it makes sense to avoid giving every foreign powerhouse easy access to flood your domestic market with finished, relatively cheap product before your domestic producers had a shot at doing so. Then, as your economy grows thanks to internal efforts and more people are skilled and employed, you can lower tariffs and start competing on the world stage. Were the United States a developing economy, we’d be fine with a new tariff because there isn’t much internal trade relying on it yet.
However, America is one of the most mature markets in the world and more than a quarter of our economy depends on international trade directly, with a significant percentage more relying on the ripple effects of that trade. Tariffs meant to hike the price of what have become raw materials for many domestic products doesn’t help our economy, it just ends up imposing an indirect tax on goods we’re used to buying. Reopening old mills, scaling up mines, procuring ore, hiring and training new workers, getting new equipment up and running, and ramping up domestic production would take years due to the complicated logistics involved. In the meantime, companies relying on a steady supply of steel and aluminum will pay higher prices and pass the costs on to you.
JUST IN: Toyota says U.S. tariffs on steel, aluminum will raise costs, therefore prices of cars and trucks sold in America
The other problem is that Trump wanted those tariffs to hit China because, on the campaign trail, he decided that Chinese steel flooding America was the reason why we now have the Rust Belt. This, of course, isn’t true. Canada is by far the number one steel supplier to the United States while China rests at the bottom of the top ten list of steel importers. Instead of landing a blow to a key rival, Trump hit an ally and neighbor, and caught two other friendly nations and yet another neighbor hoping for a healthy relationship with us: Mexico, Brazil, and South Korea. Combined with Canada, these countries provide half of our imported steel. Meanwhile, China supplies just under 3%.
Economically speaking, if this was a fight, Trump launched a haymaker and hit four of his friends on the way to delivering a gentle tap on his opponent’s cheek. This is what happens when you rely on cable news pundits for your research and neatly encapsulates the biggest and most pressing problem with this administration. They have very strong feelings about what they want to do and why, but few of these initiatives have any basis in reality or tackle real problems, and not one official seems interested in hearing the real problems and how to best tackle them instead of the imaginary ones. And as we can see, this has real-world consequences that we will end up paying for with our tax dollars and our take-home pay.
The same thing applies to multilateral trade deals. According to Trump, making bilateral trade deals is more lucrative because you can use it to secure better terms. But he again assumes that no other country could ever survive without trading with America and that whatever bilateral deals he gets involved with will be more of a hostage negotiation in which he’s holding all the cards. Yet in the real world, standards of living and technology have improved globally, so a lot of nations can push back on unreasonable terms. And while they explore other markets, we sacrifice potential trade with them and the jobs that would go along with it as the Negotiator in Chief pouts in denial, like an abusive boyfriend assuring his friends that “she’ll be back, I know her, I’m the best she could ever hope to do” when they ask what happened to his ex.
Even in the best case scenario, a bilateral deal establishes rules of economic engagement between two countries. Want to do business with a third? You’re going to have to do that process all over again. If the third country wants to do business with your current partner, their bilateral deal can easily cut you out of certain lucrative, high-value areas with a better, more generous offer on key points, and suddenly, your bilateral trade deal isn’t worth much. This is why America had pivoted towards multilateral deals. Instead of cloak and dagger and sweetheart pacts that may be very short-lived, these agreements develop more than just two way trade; they develop a common market that gives all of the participants easy, quick access, and makes economic backstabbing harder to pull off as so many eyes are watching and will be able to spot it.
You would think that as someone who considers himself a master deal-maker, Trump would understand that a patchwork of bilateral agreements gives our trading partners lots of room and leverage to get a better deal elsewhere, and multilateral deals force them to show their cards by bringing those from who they could get that better deal in the room and making them negotiate openly. But again, in The Donald’s mind, America is so irreplaceable and so powerful that he can just chant “America first!” and everyone will bow to his whims because, well, no expert is really sure why. In essence, this administration’s trade policy is weaponized complacency and nationalism, and virtually no one is buying it. This is why instead of reviving the steel industry, we’ll just be hit with obstacles in exporting bourbon, cheese, and milk.
We’ve moved on from making all of our own steel and spent decades making complex deals and supply networks to lower costs and improve quality. We’d need to develop new technology and new ways of making metals so the new mills can operate at a profit. Billions of dollars slated for paying down debt, stock buybacks, research and development, and expanding into new markets would now have to be poured into rebuilding capacity that was liquidated a long time ago. Despite what the Cult of MAGA might believe, we can’t just flip a switch and turn on all the old mills and factories. We have to rebuild them and resupply them. It will take years for the first job listings to appear, and in the meantime, we’ll just have to pay more for the metals we need.
But hold on, you might say, what do we do about the Rust Belt and the people who lost their jobs thanks to globalization and multilateral trade agreements? Isn’t going down the same road just going to hurt them again? Well, yes and no. Much of the damage has already been done, and it can hardly get worse at this point. Not only that, but the damage has been done for so long that much of the global economy has moved on. If we reopen coal mines and steel mills, we’ll be doing it much in the same way the Soviet Union kept unnecessary, wasteful factories open just to claim full employment and subsidizing it with taxpayer cash we could be using to help those affected find new jobs instead.
It’s important to remember that the mills started closing for economic reasons and in no small part thanks to automation and consolidation. There wasn’t a plan for those laid off and left behind, nor was there a Plan B for their towns. Entire communities were built around a single industry, and when it packed up and left, they had nothing to replace it. Instead of moving to nearby cities with much wider economic portfolios and able to withstand the loss of one or two large employers, many chose to stay and hope that the jobs would come back or find a way to fill the void with another industry, which also either left for greener economic pastures or wasn’t coming because it didn’t need to get another facility thanks to automation and innovation.
Rather than aggressively try to adapt, local politicians decided to take the easy way out and start scapegoating. Globalization, trade deals, foreigners, immigrants, urbanites, everyone who played in the most minor role in the new, post-industrial economy, was fair game to villainize. None of them had transition plans for the now jobless and struggling workers, therefore, they were responsible for gutting the working man’s wallet for profit, right? Well, to an extent, yes, but conversely, it wasn’t their job to come up with one. We don’t want to make companies responsible for planning our lives and require them to keep employees for decades, like in many other nations that tend to economically underperform.
Instead, that responsibility falls to the politicians running the municipality or region. They’re in charge of providing the infrastructure that attracts jobs to the area. They’re supposed to set up educational opportunities, retraining, host workshops with companies where they ask what’s coming down the line and how to help workers get ready for what’s next, making it risky for current employers to move and take a chance on a new workforce because they now know their existing pool of employees will have access to the training they’re going to want. And these companies might even want to help in making that training more effective and more lucrative.
To put it bluntly, many of our politicians failed their constituents because they refused to do the hard work of planning for the future and selling their vision for it, going with the easy path of voodoo economics and hoping the right mix of tax cuts and cash payments would attract companies to places where they didn’t want to be and a potential workforce of people who couldn’t do the job. But even they realize that trade wars will do more harm than good because the trickle of trade from urban and transportation hubs offers them a lifeline. And Trump just hit them in the wallet unilaterally, mostly because he was in a bad mood, ignoring all of his advisers except Wilbur Ross, who wanted this trade war and long believed, we were already in the middle of one.
Update 03/07/2018: After escalating his protectionist rhetoric, threatening the EU with higher tariffs on cars, and disregarding further attempts to talk him out of starting a trade war, Trump lost his top economic adviser, Gary Cohn, in the fray. Cohn appears to have spent his time trying to dissuade The Donald from his deeply held belief that any other nation’s good economy is a sign that America has been taken advantage of and the nation in question must be punished with high tariffs on their exports. Without him, we can expect more lashing out at our trade partners with painful downstream effects on our economy.