Trump obviously believes that trade is a game in which he who runs the biggest surplus wins, and that America, which imports more than it exports, therefore has the upper hand in any conflict.
That’s also why Peter Navarro predicted that nobody would retaliate against Trump’s tariffs. Since that’s actually not how trade works, we’re already facing plenty of retaliation and the strong prospect of escalation.
.. Trump’s tariffs are badly designed even from the point of view of someone who shares his crude mercantilist view of trade. In fact, the structure of his tariffs so far is designed to inflict maximum damage on the U.S. economy, for minimal gain. Foreign retaliation, by contrast, is far more sophisticated: unlike Trump, the Chinese and other targets of his trade wrath seem to have a clear idea of what they’re trying to accomplish.
.. seems to imagine that the world still looks the way it did in the 1960s, when trade was overwhelmingly in final goods like wheat and cars.
In that world, putting a tariff on imported cars would cause consumers to switch to domestic cars, adding auto industry jobs, end of story (except for the foreign retaliation.)
.. In the modern world economy, however, a large part of trade is in intermediate goods – not cars but car parts.
.. in today’s world, smart trade warriors – if such people exist – would focus their tariffs on final goods, so as to avoid raising costs for downstream producers of domestic goods.
.. an amazing 95 percent are either on intermediate goods or on capital goods like machinery that are also used in domestic production:
.. China’s retaliation looks very different. It doesn’t completely eschew tariffs on intermediate goods, but it’s mostly on final goods. And it’s also driven by a clear political strategy of hurting Trump voters;the Chinese, unlike the Trumpies, know what they’re trying to accomplish:.. Canada’s retaliation seemingly attempts to avoid messing up its engagement in North American supply chains. In broad terms, Canada is not targeting imports of American capital equipment or intermediate inputs, focusing instead on final goods.
And like China, Canada is clearly trying to inflict maximum political damage.