Why Donald Trump’s Trade War Will Fail

Why Donald Trump’s Trade War Will Fail

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Sometimes in soccer, an attempt to defend one’s turf results in a score for the opposing team—an “own goal.” There have already been nine such incidents of self-sabotage in the 2018 World Cup, by far the most in the history of the tournament. But you won’t find the most spectacular example of the summer on the pitch in Russia. That distinction goes to Donald Trump’s administration, whose determination to start a trade war with China is, like the best own goals in soccer, muscular in its approach, blind in its aim, and self-injurious in its consequences.

After months of warnings and threats and failed negotiations with China, United States officials have started collecting tariffs on $34 billion worth of Chinese goods. In response, Beijing has said that it will retaliate with levies on American pork, soybeans, and cars. In response to that response, Trump has promised to re-retaliate by applying tariffs to more than $200 billion worth of goods from China if Beijing follows through.

This sort of volley is dramatically referred to as a trade war, but it might be more productive to think of it as an international tax standoff. The vocabulary around trade is filled with specialized terms like tariff, levies, and retaliatory measures. But a tariff is simply a tax paid by companies that import foreign goods. This has the effect of raising prices on foreign stuff, theoretically making domestic industries more competitive. A quick example: A U.S. tariff on alcohol from Scotland raises the price of scotch for American drinkers. That punishes scotch fans like me, but it helps American whiskey distillers by making bourbon more attractive to consumers.

“Trade wars are good and easy to win,” Trump has said. Let’s consider those adjectives, one at a time. First, trade wars aren’t “good” in any meaningful sense of the word. The damage from Trump’s tariffs has been widely reported. Harley-Davidson announced that it will move some production overseas to offset European Union tariffs. Banks have postponed investments in new American factories for fear that they’ll be caught in the crossfire. Whiskey distilleries are worried that new tariffs will dry up exports to Asia and Europe. Maybe none of these fears will materialize and, in six months, the effects of these tariffs will be barely perceptible. Or maybe Trump will look up to see the ball in the back of his own net: Of the 30 congressional districts hit hardest by China’s retaliatory tariffs, 25 voted for Trump.

Second, a trade war is indeed “easy to win”—if you’re taxing imports from, say, a tiny island led by a weak government going into an uncertain election with no means of bailing out its weakened industries. China has none of those distinctions. It is a massive socialist market economy, led by an undemocratic leadership facing no electoral pressure, which spends oodles of money subsidizing its domestic businesses, all the time. As film buffs know, “Never get involved in a land war in Asia” refers to one of history’s classic blunders; only slightly less well-known is “Never go in against a socialist market economy when midterms are on the line.”

So what exactly is President Trump trying to accomplish here? It’s important to state that American and European companies have real gripes with China, which has spied on foreign companies and forced Western tech firms to hand over patented technology as a condition for selling into the Chinese market. Pressuring China to change course will take a coordinated global effort, a careful construction of alliances around the world, and a cautious approach to nudging China toward lowering its barriers to entry.

But rather than cultivating alliances, Trump is smashing them left and right. He’s raised taxes on steel imports from Canada and the EU and trashed the nato alliance, at the very time that the China problem begs for international assistance. The tactics and the strategy are going in opposite directions.

“Trump is inflicting genuine economic costs on the country without necessarily achieving any particular goals,” says Josh Meltzer, a senior fellow in the Global Economy and Development program at the Brookings Institution. “Instead, we’ve raised tariffs on our allies and alienated them, which has allowed China to portray us as the global outlier.”

In the larger analysis, Trump’s presidency and Chinese trade have a significant, if latent, historical connection. In the early 2000s, Americans started buying significantly more goods from China after it joined the World Trade Organization, in 2001. Prices fell for most consumers, but exposure to the Chinese market also destroyed millions of jobs, especially in cities with a large manufacturing presence. Years later, those very cities became significantly more likely to vote for Donald Trump, according to research by the economist David Autor. So it is not hyperbolic to say that trade with China, and its effect on the labor force, helped elect Trump.

But there are better ways to ameliorate displaced manufacturing workers than waging a trade war against the entire world. A stronger safety net, universal benefits, and a federal strategy to pay people to move to different cities would all help soften the acute effects of globalization for workers in certain industries. “The U.S. has not done well with moving people around, helping them skill up, preventing free trade from leading to political backlash,” Meltzer says. “You need to have a more comprehensive system in place to help workers who have lost their jobs, and the U.S. has never done that well.”

U.S. economic policy has failed to make globalization safe for democracy. In such a scenario, an own goal doesn’t seem like such a surprising error. Defenders are more likely to kick the ball into their own net when there’s nowhere else to turn.

Source: technology

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