Trade wars are not 'good and easy to win'

My first thought when I heard Trump’s plan to slap 25% tariffs on steel imports (and 10% on aluminum) was something like this: “The global economy is finally clicking on all cylinders, why are you messing with it?” Upon more reflection, I think that was exactly the right response. However, Trump is right that there’s a problem. While global trade has absolutely benefitted America, we are getting a raw deal in some ways (including steel). The question is how to solve that problem.
There’s a broad consensus among financial and economic experts that trade wars hurt everyone. Even among politicians, there’s remarkably bipartisan agreement on that point. Of course, Trump isn’t really a guy who believes in experts or common wisdom.
It’s easy to see why tariffs are appealing. If imported steel is 25% more expensive, American steel producers can raise their prices and still be competitive with imported steel. As a result, they’ll make more money, and buy more equipment, and hire more workers – and everyone is happy.   
Unfortunately, that’s not the end of the story. Higher steel prices mean that anything with steel in it will have a higher price, which hurts consumers. It also hurts any business that makes stuff with steel because their prices will go up for raw materials. Goldman Sachs predicted the tariffs could cost Ford & GM $1 billion just this year.        
The biggest worry for the markets is what puts the “war” in “trade war.” Other countries around the world will probably retaliate against American industries, which could encourage Trump to hit right back. It’s hard to stop a trade “slap fight” from turning into a trade “fistfight” and then a trade war.
This is why tariffs are such a risky strategy. In an effort to help American steel producers, you’re hurting consumers, and any industry that buys steel, and any industry that other countries retaliate against – and adding a lot of uncertainty. So, there are a lot of losers in this deal, and only one winner: Steel manufacturers.
Unfortunately, I don’t think Trump understands any of this. He recently bragged to a crowd of supporters that he complained to Canadian President Trudeau about our trade deficit with Canada – even though he “had no idea” if that was true or not (it’s not true by the way, according to the Commerce Dept, we actually have a $2.77 billion surplus with Canada). Just think about that for a moment: Trump talks endlessly about trade deficits, and was talking to Canadian President Trudeau, and yet he didn’t bother to know this very basic fact. Can you imagine being that unaware and unprepared – and apparently proud of it?
Being aggressive about trade is one of the rare things Trump has been consistent on throughout his adult life. You can find clips from the 80’s where he calls for tariffs on Japanese carmakers. Trump has 3 more years to fight this battle, and plenty of power as President to make it happen. There’s already talk that he’s working on a tariff plan for China. From a guy who tweeted that trade wars are “good and easy to win,” that shouldn’t be a surprise. I sure hope all the experts are wrong.
 

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